13 Tips For Buying Your First Home

Buying a home can be nerve-wracking, especially if you’re a first-time homebuyer. Not only is it probably the biggest purchase of your life, but the process is complicated and fraught with unfamiliar lingo and surprise expenses.

To make the first-time home buying journey a little less stressful, here are 13 tips to help you navigate the process more smoothly and save money.

1. Start saving for a down payment.

It’s common to put 20% down, but many lenders now permit much less, and first-time home buyer programs allow as little as 3% down. But putting down less than 20% may mean higher costs and paying for private mortgage insurance, and even a small down payment can still be hefty. For example, a 3% down payment on a $500,000 home is $15,000.

2. Determine Your Budget

Before you start looking for your dream home, you need to know what’s actually within your price range.

3. Checking your credit

When you’re taking out a mortgage loan, your credit will be one of the key factors in whether you’re approved, and it will help determine your interest rate and possibly the loan terms.

4. Watch any new credit activity

Any time you open a new credit account, whether to take out an auto loan or get a new credit card, the lender runs a hard inquiry, which can temporarily ding your credit score. If you’re applying for a mortgage soon, avoid opening new credit accounts to keep your score from dipping.

5. Explore your down payment options

Struggling to come up with enough money for a down payment? First-time homebuyer programs are plentiful, including federal mortgage programs with Fannie Mae and Freddie Mac that allow loans with only 3% down.

6. Research state and local assistance programs

In addition to federal programs, many states offer assistance programs for first-time homebuyers with perks such as tax credits, low down payment loans and interest free loans up to a certain amount. Your county or municipality may also have first-time homebuyer programs.

7. Budget for closing costs

In addition to saving for a down payment, you’ll need to budget for the money required to close your mortgage, which can be significant. Closing costs generally run between 2% and 5% of your loan amount. You can shop around and compare prices for certain closing expenses, such as homeowner’s insurance, home inspections and title searches. You can also defray costs by asking the seller to pay for a portion of your closing costs or negotiating your real estate agent’s commission.

8. Set aside more money for after move-in

Sorry, that’s not all you need to save up for before home shopping. Once you’ve saved for your down payment and budgeted for closing costs, you should also set aside a buffer to pay for what will go inside the house. This includes furnishings, appliances, rugs, updated fixtures, new paint and any other touches you’ll want to have when you move in.

9. Consider what type of property to buy

You may assume you’ll buy a single-family home, and that could be ideal if you want a large lot or a lot of room. But if you’re willing to sacrifice space for less maintenance and extra amenities, and you don’t mind paying a homeowner’s association fee, a condo or townhome could be a better fit.

10. Research mortgage options

Is a 30-year, fixed rate mortgage a given, or is another loan type right for you? If you can afford larger monthly payments, you can get a lower interest rate with a 20-year or 15-year fixed loan. Or you may prefer an adjustable-rate mortgage, which is riskier but guarantees a low interest rate for the first few years of your mortgage.

11. Compare mortgage rates

Many homebuyers get a rate quote from only one lender, but this often leaves money on the table. Comparing mortgage rates from at least three lenders can save you more than $3,500 over the first five years of your loan, according to the Consumer Financial Protection Bureau. Get at least three quotes and compare both rates and fees.

12. Decide if paying points makes sense

Lenders often allow you to buy discount points, which means prepaying interest upfront to secure a lower interest rate. There may also be an option for negative points, in which the lender pays some of your closing costs in exchange for a higher interest rate. How long you plan to stay in the house is one of the key factors in whether buying points makes sense. You’ll need to do some calculations or speak to a mortgage broker or loan officer to help you decide if buying points is worth it for you.

13. Get a preapproval letter

You can get prequalified, which simply gives you an estimate of how much a lender may be willing to lend based on your income and debts. But as you get closer to buying a home, it’s smart to get a pre-approval, where the lender thoroughly examines your finances and confirms in writing how much it’s willing to lend you and at what terms. Having a pre-approval letter in hand makes you look much more serious to a seller and can give you an upper hand over buyers who haven’t taken this step.