Main Image Courtesy of Opendoor.

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Tip #1: Understand Your Budget + Main Costs

To save yourself the potential future heartbreak later on, it’s important to understand how much you can actually afford when it comes to purchasing a home. You don’t want to end up falling in love with a place that you can’t ultimately afford! There are a few different types of costs when it comes to buying a home, which include:

• Down payment: The requirement of your down payment will depend on the type of mortgage you choose and the lender. Conventional loans designated for first-time home buyers with good credit require as little as 3% down. But even a small down payment can be difficult to save up for. For example, a 3% down payment on a $300,000 home is $9,000. 
• Closing costs: When you finalize your mortgage, you will be expected to pay some fees and expenses that can range anywhere from 2-5% of the loan amount. For example, if you were to make a 3% down payment on a $300,000 home that would already be $9,000. 
• Potential move in expenses: After you purchase the home, you’ll most likely need to have some extra cash for home repairs, upgrades, and furnishings. 

Tip #2: Search for Mortgage Options

Getting pre-approved for a mortgage can help you get a better idea of what finances can be loaned to you. Main categories of mortgages include:

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• Conventional mortgages: Conventional loans targeted at first-time buyers require as little as 3% down. However, they are not guaranteed by the government. 
• FHA loans: Insured by the Federal Housing Administration and allow down payments as low as 3.5%.
• USDA loans: These loans are for rural home buyers and usually require no down payment. They are guaranteed by the U.S. Department of Agriculture
• VA loans: VA loans are for current and veteran military service members and usually require no down payment. They are guaranteed by the Department of Veterans Affairs.

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When it comes to the mortgage term, you have a couple options. The most common route for home buyers is to opt for a 30 year fixed-rate mortgage, which can be paid off in 30 years and involves an interest rate that doesn’t change. A 15 year loan on the other hand may have a lower interest rate than a 30 year mortgage, but the monthly payments are a little bit longer.

You can also consider an adjustable-rate mortgage or ARM. ARM rates are usually lower than fixed rates, which means that you can buy a more expensive home for the same monthly payment. These rates can also increase or decrease over time.

Tip #3: Take Care of Your Credit

In order to qualify for a mortgage, a credit score is pretty important. A higher credit score will get you a lower interest rate, and there are some steps you can take to help improve your credit score:

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• Get free copies of your credit reports from the three credit bureaus which include Experian, Equifax and TransUnion. Remember to dispute any errors that could hurt 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 credit you already have available, which can actually lower your score. 
• Track your credit score on applications like NerdWallet.

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Tip #4: Choose the Right Professionals 

It’s important to find a realtor that has good experience and whom you can trust. You can get agent referrals from other home buyers that you may know, or find some realtors to interview yourself and request a couple references. 

A good realtor knows how to search through the market for homes that fit your needs and make the negotiation process a bit more simple. A mortgage broker is also involved in the process, and they can help you compare multiple lenders and talk to the financial institutions you are already doing business with.

Tip #5: Consider the Surrounding Neighborhood

Instead of just focusing on the home itself, it’s important to look around the chosen neighborhood of the home to avoid any unpleasant experiences or surprises down the road. When looking around various neighborhoods, you can ask yourself questions that include:

• What kind of development plans are in the works for the neighborhood?
• Is the street likely to become a major street that can result in increased traffic? 
• What are the zoning laws in the area?
• Is there potential for something to be built on empty land nearby?
• Have home values in the neighborhood been going up? Going down? 

‍Tip #6: Visit Open Houses

Whether in person or virtually, take up the opportunities to check out open houses! While doing virtual open houses can be a bit more convenient, touring homes in person will allow you to get more of an inside look in your possible future home. You can catch a glimpse into the overall condition of the home in person and check out the electrical/plumbing systems. Listen for any noises and pay attention to any odd odors as well!

Start Preparing Today

The process of buying a home often resembles the start of a new chapter in one’s life, so it’s important to take the process seriously and find the perfect home to cherish for years to come. Happy hunting!

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