Buying a home can be challenging for a first-timer. There are so many steps, tasks, and requirements, and you may be anxious about making an expensive mistake. But first-time homebuyers can actually enjoy some special advantages created to encourage new buyers into the real estate market.
To illustrate the process so you get the most out of your purchase, here is a rundown of what you need to consider before you buy and what you can expect from the buying process itself, plus a few tips to make life easier as you buy your first home.
1. Start Saving Early On
You want to start saving as soon as possible, but you do not need to sell an arm and leg to purchase a home. The common misconception is that you need 20% down to purchase a home, but that is simple false. Below are the main costs to consider when saving up for a home:
Down payment: The amount of your down payment will depend on the lender and type of mortgage you choose. Conventional loans that target first time home buyers with great credit allow as little as 3% down. Use a down payment calculator to decide a realistic savings goal. Then set up automatic transfers from checking to savings so you do not have to even think about it.
Closing costs: These are the fees and expenses you pay to finalize your mortgage, and they typically range from 2% to 5% of the loan amount.
Move-in expenses: You also might need to set aside some cash for appliances, upgrades and furnishings.
2. Decide a Price Point That Makes Sense
The next step is to calculate what price makes the most financial sense for you. Figure out how much you can safely spend on a house before starting to shop, if you wait to set a budget you can find yourself falling in love with a home that might be out of your budget. Use a home affordability calculator to set a price range based on income, debt, down payments, credit score and location.
3. Check & Strengthen Your Credit
Your credit score is super important when it comes to the purchase of a home. When determining qualifications for a mortgage and interest rates, lenders will look at your credit score
You can take the following steps to help improve your credit:
Get free copies of your credit reports from each of the three credit bureaus — Experian, Equifax and TransUnion — and dispute any errors that might be hurting your score.
Pay all your bills on time, and keep credit card balances as low as you can.
Keep current credit cards open. Closing a card will increase the portion of available credit you use, which inadvertently can lower your score.
Track your credit score closely.
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4. Explore mortgage options
There are a variety of mortgage options to select from when it comes to down payment & eligibility requirements. The main categories are:
Conventional mortgages are not guaranteed by the government. There are some conventional loans targeted at first-time buyers that require as little as 3% down.
FHA loans are insured by the Federal Housing Administration and allow down payments as low as 3.5%.
USDA loans are guaranteed by the U.S. Department of Agriculture. They are for rural home buyers and usually require no down payment.
VA loans are guaranteed by the Department of Veterans Affairs. They are for current and veteran military service members and usually require no down payment.
There are also options for different mortgage terms. The most common term that home buyers opt for is a 30-year fixed-rate mortgage, which is paid off in 30 years and has an interest rate that stays the same. You can also do a 15-year loan which will typically have a lower interest rate than a 30-year mortgage, but the monthly payments are larger.
5. First-Time Home Buyer Assistance Programs in Utah
First-time home buyers in the state of Utah who meet income and other eligibility requirements can get a 30-year mortgages at competitive interest rates through Utah Housing’s First Home Loan program. Other loan programs are available to first-time and repeat buyers.
HIGHLIGHTS
Down payment and closing-cost assistance is available in the form of a second mortgage.
All primary mortgages are 30-year, fixed-rate loans.
Minimum credit scores start at 620.
ELIGIBILITY
Loan must be used to buy a primary residence in Utah.
Most programs have income limits.
Some programs have home-price limits.
Your next step
That’s a summary of home buying programs for first-time (and repeat) home buyers in Utah. For details, see the Utah Housing Corp. website.
6. Compare Mortgage Rates & Fees
The Consumer Financial Protection Bureau recommends requesting loan estimates for the same type of mortgage from multiple lenders to compare the costs, including interest rates and possible fees.
Lenders may offer the opportunity to buy discount points, which are fees the borrower pays upfront to lower the interest rate. Buying points can make sense if you have the money on hand and plan to stay in the home for a long time. Compare different rates by filling out this form.
7. Get a Pre-Approval Letter
A mortgage pre-approval is a lender’s offer to loan you a certain amount under specific terms. Having a pre-approval letter shows home sellers that you are serious about purchasing a home. Also if you are planning on going the new construction route a pre-approval letter most likely will be required. To get a pre-approval letter, a lender will pull your credit and review documents to verify your income, assets and debt.
» MORE: Get pre-approved for a mortgage
8. Choose a Real Estate Agent Carefully
Arming yourself with a good real estate agent is crucial in this market. A good real estate agent will scour the market for homes that meet your needs and guide you through the negotiation and closing process. Here at Red Sign we are comprised of a whole team that allows all our agents to be supported throughout the entire real estate transaction to ensure the process goes as smoothly as possible.
9. Pick The Type of House You Want & Location
When it comes to the type of home you want it is important to weigh the pros and cons. You will want to consider your lifestyle and budget when deciding. A condo or townhome might be more affordable than a single-family, but shared walls can mean loud neighbors and less privacy. You will also want to calculate homeowners association fess when shopping multifamily(condominiums/townhomes) homes.
Another option to consider is buying a fixer-upper — a single-family home in need of repairs. These fixer-uppers usually sell for less than move-in ready homes. However, you may need to budget extra for repairs and remodeling.
Location. Location. Location. As most of you are aware the same home can be a completely different price depending on where the home sits. Research different areas throughly to see what price point works for you. You also want to make sure to consider long-term needs. If you plan to start or expand your family, it may make sense to buy a home with extra room to grow. Also make sure to check out potential neighborhoods thoroughly. Choose one with amenities that are important to you, and test out the commute to work during rush hour.
10. Stick to Your Budget
A lender may offer to loan you more than what is comfortably affordable for you and your family, this can bring pressure on you to spend outside of your comfort zone to be competitive in a world of multiple offers. To avoid financial stress down the road, set a price range based on your budget, and then stick to it no matter how much you might love a home.
11. Pay For a Home Inspection
A home inspection is a thorough assessment of the structure and systems of the home. A professional inspector will look for potential issues in the home, so you can make an informed decision about buying the property. Here are some things to keep in mind:
Standard inspections don’t test for things like radon, mold or pests. Understand what’s included in the inspection you select.
Make sure the inspector can get to every part of the house.
If you are able make sure you attend the inspection. By following the inspector around you can get a better understanding of the home and ask questions on the spot. If you can’t attend, diligently review the inspector’s report and make sure to question anything you are uncertain about.
12. Buy Adequate Home Insurance
Your lender will require you to buy homeowners insurance before closing on your home. Home insurance covers the cost to repair or replace your home and belongings if they’re damaged by an incident covered in the policy. It also can provide liability insurance if you’re held responsible for an accident.
The Bottom Line
This overview should help put you on the path to filling in any questions you may have about the home buying process. It is important to keep in mind the more you educate yourself about the process beforehand, the less stressful it will be. Educating yourself will also allow you to be better prepared to get the house you want for a price you can afford. When it’s all done, you’ll have the confidence that comes from successfully negotiating a major stepping stone in your life.
If you have more questions about getting started in your first home search contact one of our professional agents and we will be more than happy to help you.