7 Tips for First Time Home Buyers: Get Ahead Before You Buy
12/08/2010
First time home buyers face a lot of big decisions during the home purchase process. We understand. But you can save yourself a load of stress by applying these seven tips to get ahead before you get started.
1. Don’t rush into it. You may want to buy a home right now, but it may not be the best decision for you yet. Take it slow. Do it right. If you try to rush through the process and get into a home as soon as you can, you might end up locked into a bad deal. Trust us. We’ve seen it happen.
2. Learn how the mortgage industry works. If you’re like many first timers, your mind is on “new home” right now, not “boatload of debt that will take decades to pay off.” Do yourself a favor and research your mortgage options. Don’t bother finding a lender yet. That step will come. For now, learn how mortgages work, how real estate works, and, hopefully, how you can use your impending debt obligations to your financial advantage. If you need help learning the mortgage lingo, check out a three-part series we recently published on understanding mortgage terminology here, here, and here.
3. Save for the down payment. You’ll want to put down at least 20% of the total home price in cash at closing. That’s a lot of money, probably at least $20,000, depending on home prices in your area. Find ways to secure that cash before you apply for the mortgage. If this means setting aside additional income into a savings account for a year or two, take the time to do it. Don’t rush, remember?
4. Build up good credit. This also takes time. You’ll need a good credit score if you want to qualify for the lowest mortgage rates. Take the time to build up solid credit.
5. Understand your own financial situation. Long-term financial goals are the key to lifetime financial success. Set these goals for yourself or your family and evaluate your upcoming home purchase in light of them. Is your income stable or volatile? Do you plan to move again in just a few years? Do you plan to use your home value to fund your retirement? Take these things into consideration before you try to find a home that meets your needs.
6. Find a lender. Actually, find the best lender. Don’t just go with the bank on the street corner. Compare mortgage rates offered by different institutions. Determine which mortgage package best meets your needs.
7. Get your personal information ready. If you want to get ahead of the game, gather all relevant personal information that your lender will need to see and have it ready before you apply for the mortgage. This includes bank statements, employment verification, proof of income, and more. It can take a while to gather this paperwork. Get it together before you need it, and you’ll save time during the mortgage closure process.
