If you are like millions of others, owning a home is a primary financial and lifestyle goal. Here are a few tips to help you navigate the process of buying your first home.
1. Start saving early
The main costs to consider when saving for a home are:
- Down payment: Your down payment requirement will depend on the type of mortgage you choose and the lender. Even a small down payment can be challenging to save. For example, a 3% down payment on a $300,000 home is $9,000. Use a down payment calculator to decide a goal, and then set up automatic transfers from checking to savings to get started.
- Closing costs: These are the fees and expenses you pay to finalize your mortgage. You can ask the seller to pay a portion of your closing costs, and you can save on some expenses, such as home inspections, by shopping around.
- Move-in expenses: You'll need some cash after the home purchase. Set some money aside for immediate home repairs, upgrades and furnishings.
2. Decide how much home you can afford
Figure out how much you can safely spend on a house before starting to shop. A mortgage affordability calculator can help you determine the monthly cost of owning a home.
Figure out how much you can safely spend on a house before starting to shop. A mortgage affordability calculator can help you determine the monthly cost of owning a home.
3. Check and strengthen your credit
Your credit score will determine whether you qualify for a mortgage and affect the interest rate lenders will offer. Take these steps to strengthen your credit score to buy a house:
Your credit score will determine whether you qualify for a mortgage and affect the interest rate lenders will offer. Take these steps to strengthen your credit score to buy a house:
- Get free copies of your credit reports from each of the three credit bureaus — Experian, Equifax and TransUnion — and dispute any errors that could hurt your score.
- Pay all your bills on time, and keep credit card balances as low as possible.
- Keep current credit cards open. Closing a card will increase the portion of available credit you use, which can lower your score.
4. Get a preapproval letter
A mortgage preapproval is a lender's offer to loan you a certain amount under specific terms. Having a preapproval letter shows home sellers and real estate agents that you're a serious buyer, and can give you an edge over home shoppers who haven’t taken this step yet.
A mortgage preapproval is a lender's offer to loan you a certain amount under specific terms. Having a preapproval letter shows home sellers and real estate agents that you're a serious buyer, and can give you an edge over home shoppers who haven’t taken this step yet.
Apply for preapproval when you're ready to start home shopping. A lender will pull your credit and review documents to verify your income, assets and debt.
5. Stick to your budget
A lender may offer to loan you more than what is comfortably affordable, or you may feel pressure to spend outside your comfort zone to beat another buyer’s offer. To avoid financial stress down the road, set a price range based on your budget, and then stick to it. Look at properties below your price limit to give some wiggle room for bidding in a competitive market.
A lender may offer to loan you more than what is comfortably affordable, or you may feel pressure to spend outside your comfort zone to beat another buyer’s offer. To avoid financial stress down the road, set a price range based on your budget, and then stick to it. Look at properties below your price limit to give some wiggle room for bidding in a competitive market.
6. Negotiate with the seller
You may be able to save money by asking the seller to pay for repairs in advance or lower the price to cover the cost of repairs you’ll have to make later. You may also ask the seller to pay some of the closing costs. But keep in mind that lenders may limit the portion of closing costs the seller can pay.
You may be able to save money by asking the seller to pay for repairs in advance or lower the price to cover the cost of repairs you’ll have to make later. You may also ask the seller to pay some of the closing costs. But keep in mind that lenders may limit the portion of closing costs the seller can pay.
7. Buy adequate home insurance
Your lender will require you to buy homeowners insurance before closing the deal. 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 provides liability insurance if you're held responsible for an injury or accident. Buy enough home insurance to cover the cost of rebuilding the home if it's destroyed.
Your lender will require you to buy homeowners insurance before closing the deal. 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 provides liability insurance if you're held responsible for an injury or accident. Buy enough home insurance to cover the cost of rebuilding the home if it's destroyed.
Owning a home has been part of the “American Dream" for years. With careful consideration and planning, you can likely make this dream a reality.