10 first-time homebuyer tips: How to get that house

The U.S. housing market is more difficult than ever for those looking to buy a home because mortgage rates are almost at a 23-year high, home prices are almost at an all-time high, and supply is scarce nationwide. Still, for consumers who are organized and diligent in their research, becoming a first-time homeowner might be a realistic ambition. Here are some money-saving tips that will help you get started on the right track toward becoming a house buyer.

 

House-hunting tips for first-time home buyers

1. Check your credit (and work on it)
Your mortgage interest rate will be better the higher your credit score.

Take out your reports.
Obtain free credit reports from Equifax, Experian, and TransUnion to gain a comprehensive understanding of your credit status and the reasons behind it. Ralph DiBugnara, the president of Home Qualified, an online resource for homebuyers in New York City, advises looking for any errors or past-due bills that may have gone to collections. "These obligations may put obstacles in your home loan application. If something is wrong, contact the creditor to try to resolve it.

Restore your credit, then keep an eye on it.
Your available credit, including credit card limits, overdraft protection amounts, and any other lines of credit you may have, and the portion of that credit you currently use, play a significant role in determining your credit score. One important factor is your credit utilization ratio, or how near your credit limit your outstanding credit card balances are. It is calculated by dividing the total amount of credit you have by the total debt you have on credit.

According to Lindsey Shores, assistant manager of real estate originations at Schools First Federal Credit Union in Sacramento, California, "your credit utilization ratio should be 30 percent or less." "Many people have to budget for and strive to pay down this amount to reach it." Try to pay off your balances if you have more than that amount.

As you move forward, concentrate on keeping them low. Additionally, you should ensure you pay all your bills on time because late payments hurt your credit score.

Monitor your credit regularly using any of the many free services available, such as those provided by Bankrate and numerous banks. Additionally, consider signing up for a credit monitoring service if you haven't already done so. DiBugnara states, "You'll get notified if suspicious activity on your report or your credit score changes."

2. Streamline your spending plan
According to Lauren Lindsay, an independent financial planner based in Houston, "One lesson from the [2008 housing] crash is that just because the bank approves you for a certain amount, it doesn't mean you can afford it."

Another thing to think about is that if you look for homes below your budget, you can negotiate over the asking price in the event of a bidding war, which is not unheard of in the current market.

When creating your budget, consider not only the amount of housing you can afford but also the ongoing expenses you will have to pay after buying a property.

The three main monthly costs of homeownership are mortgage, insurance, and property taxes; however, you may also have to pay for utilities and possibly HOA dues. Additionally, it is a good idea to budget money regularly for upkeep and unforeseen repairs.

"Generally speaking, I advise clients to budget between one and three percent of their property's worth annually for housing-related expenses," says Pittsburgh-based Innovate Wealth managing partner and certified financial planner Steve Sivak. If the house you purchase is more significant, older, or has features like a pool that requires much upkeep, you may need to budget extra money.

3. Take into account your requirements and desires
Scouting neighborhoods should be done early because finding the perfect place and address can take longer than you think.

"Explore that region by car and foot at various hours of the day and night," advises Bill Golden, an associate broker and Realtor with Keller Williams Realty Intown Atlanta. "This will assist you in determining your preferences."

This is a good time to identify the neighborhood and refine your preferences for the actual house. What kind of home are you trying to find? What can you give up on? Which ones are absolute musts? Your list of needs and wants will be more informed if you consider the aspects of your current residence that you like and dislike.

4. Establish financial arrangements
You should prove to prospective lenders that you have a steady source of income, regardless of your current income level.

According to Tom Hecker, a loan officer with Cherry Creek Mortgage in Greenwood Village, Colorado, "Lenders will scrutinize your income and how much you earn monthly. They will look for a two-year employment history and want consistent income—whether you receive a salary, hourly pay, or are self-employed."

If you work for yourself, expect more scrutiny than someone who receives a salary or hourly rate.

Mortgage lenders usually examine your bank statements for the previous two months and your credit report when evaluating your application, considering your liquid assets and general financial well-being. Make sure to deposit any funds from other assets, like a gift for a down payment, into your checking or savings accounts before the 60-day period expires. This allows the money to "season."

Furthermore, DiBugnara advises against taking out new loans, credit accounts, or accruing additional debt. Any of those actions might negatively impact your credit report.

Advice for selecting the ideal mortgage

5. Mortgage lenders that compare prices

You ought to be aware of the monthly payment you can comfortably afford, the areas you can afford, and the amount of the down payment. It's now time to start looking for a mortgage. Take into account these elements:

• Comparative analysis: Examine mortgage rates offered by at least three different providers and various mortgage types.
• What other people are saying: Read online customer reviews to get an idea of what it's like to work with a particular lender.
• Relationships with the lender: DiBugnara notes that while "competitive rates and service are still available in this market," it is essential to monitor lenders' responsiveness and communication closely.
• The conditions of the mortgage: It's also a good idea to pay attention to all the mortgage terms, not just the rates lenders quote you. What late fees are there? What is the expected cost of closing? Is there a penalty for early payments? Will you receive a better deal if you can obtain a mortgage from the bank where you currently have accounts? Sometimes, if the other terms are better overall, it makes sense to go with a loan with a slightly higher rate.

6. Obtain preapproval
Upon selecting a lender, proceed to obtain preapproval for a mortgage. Your income and financial situation must be documented, so organizing your paperwork beforehand can make the process go more smoothly.

A preapproval letter from a lender specifying exactly how much it will loan you, as opposed to prequalification, is an estimate of the loan size you can get. Possessing a preapproval will make you more competitive when putting in an offer on a home and will streamline the process when it comes time to apply for a loan after your offer is accepted.

DiBugnara notes that preapprovals typically expire after 90 days, so find out from your lender how long theirs will last. To find problems to address, you should apply for preapproval as soon as possible if you're a first-time homebuyer with a lot of debt or mediocre credit.

Hecker advises following a budget and savings plan and making on-time payments on all debts after a preapproval-approval void additional debt or making any extraordinary purchases."

7. Seek assistance for a down payment.
One of the numerous first-time homebuyer and down payment assistance programs available at the local, regional, and federal levels may cover your down payment or closing costs. These programs can cap the price of the home and are usually only available to borrowers whose income falls below a given threshold (depending on their location).

Numerous state housing finance agency mortgages for first-time homebuyers and those with low to moderate incomes are paired with many of these programs. To be eligible for the help, which can come as an outright grant, a low-rate or forgivable loan, or both, you usually have to receive one of these HFA loans. However, this is only sometimes the case.

Your loan officer will often be able to tell you about the various programs available and what you might be able to combine with your mortgage.

Advice for purchasing your first house

8. Assist a real estate representative

Hiring a real estate agent or Realtor is the next step for first-time homebuyers after they have a preapproval letter and their financing sorted out.

An experienced real estate agent who is particularly knowledgeable about the area you're looking to buy in can advise you on market conditions and whether the homes you want to make offers on are priced appropriately. In addition to advocating on your behalf during price and terms negotiations, your agent can spot possible problems in a neighborhood or house that you are unaware of.
Asking friends, family, or coworkers for recommendations is a good place to start. Interview a few potential agents to get a sense of who might be a good fit in terms of expertise and personality.

Golden advises against choosing an agent at random and instead suggests choosing one who works in the general area you're looking into and with whom you feel comfortable. "A good Realtor will stay on top of that and get you to see new listings as soon as they become available." Offers "come up every day."

9. Engage in negotiations with the vendor
Always be confident in your ability to bargain a price with sellers, even when you've found the house of your dreams. This can be challenging in booming real estate markets, as we have seen over the last two years. Still, in some areas of the nation, conditions are becoming more balanced between buyers and sellers as interest rates rise and sales decline.

Furthermore, it never hurts to inquire, mainly if the house has been listed for a while and you're a strong contender. Consider making a lower offer than the asking price or requesting concessions, like the seller paying a portion of the closing costs or repairs.

You can negotiate a better price if you can persuade the seller to accept some of these conditions.

10. Create a contract.
When you locate a property and get ready to submit an offer, be specific about any circumstances or terms that will let you back out of the agreement. These may include the home inspection, which may turn up expensive problems, or the denial of your mortgage application. Once your offer is accepted, you and the seller will sign a formal purchase and sale agreement, including these contingencies. You will have an out if the transaction doesn't go as planned and will receive your earnest money deposit back if these terms are spelled out in writing with deadlines.


Before you close on the house, get quotes from contractors for any repairs or improvements the property might require if there is a problem, advises DiBugnara. By conducting this research, you can budget for those costs and gain time to finish the work before moving in.

In Summary
First-time homebuyers may find the process intimidating and never-ending. However, you can maintain focus and complete the task by breaking the process down into manageable steps and taking each individually. Working with a reputable real estate agent and researching beforehand will help you remain focused. You can improve your chances of getting approved for a loan and obtaining your first house by maintaining stable finances and avoiding other large-scale purchases.