Buying a house for the first time is an exciting chapter of your life. It also requires more than simply scrolling through homes on Zillow.
Here are six things to consider when buying a house for the first time:
Figure Out Your Overall Budget
First and foremost, you need to know your budget. You probably won’t be paying for your house in cash. Therefore, you’ll need to apply for a loan. But just because you get pre-approved for a $300,000 loan doesn’t mean you should spend that much.
There are extra expenses to consider, like furnishing and decorating your new home. Things like personalized floral wall decor for a nursery or paintings to add to your home office.
Of course, there are also closing costs that can usually amount to a few thousand dollars. Typically, these fees are paid by the buyer. See what you can realistically afford for both the cost of the house, as well as what it takes to turn it into a home.
Secure Your Downpayment
Unless you’re getting a VA loan or another type of mortgage that doesn’t require money upfront, you’re going to need to save enough for a downpayment. Typically a downpayment is around 20 percent. However, the more you put down, the lower your monthly mortgage will be.
There are several ways to save money before you start talking to local lenders. Start by creating a savings schedule. Take a look at your current savings and monthly expenses to see how much you can put away each month.
Decipher what can be trimmed back, such as excess streaming services or gym memberships you don’t utilize.
Reexamine your extra monthly expenses every few weeks to see how much you’re spending on things like going out to eat. You can even consider getting a second job or a side hustle to make extra cash.
Raise Your Credit Score
One of the big pieces a lender will look at when you apply for a loan is your credit score. This is based on several factors, including your debt to income ratio and whether you pay your bills regularly. To buy a house, it’s recommended to have at least a 620 or higher.
If your score is lower than that, there are certain things you can do to help raise it a few points.
- Pay off excessive debt such as credit cards.
- Make sure to pay off all your bills on time.
- Don’t close any credit cards, even if the balance is at zero, as this can lower your credit score.
- When looking for your credit score, get free copies from Experian, Equifax, and TransUnion and dispute anything that could be lowering your current score.
Research Different Loan Options
Now that you’ve started to get your financial health in order, it’s time to start researching different loan options. Typically, people go for a conventional loan. It’s a great option for first-time homebuyers and can have interest rates of as little as 3 percent.
Other mortgage types include, but are not limited to:
- FHA Loans
- VA Loans
- USDA Loans
- Adjustable-Rate Loans
- Jumbo Mortgage
- Reverse Mortgage (eligible for people over the age of 65)
Your circumstances may allow you to apply for a loan outside of the traditional options, such as homes being purchased for agriculture or house flipping. Specify your intended goal and learn as much as you can about your viable options.
Before you start the house hunt and attend open houses, you’ll want to get pre-approved for a loan. No seller will take you or your offer seriously unless they know you have the money to back you up.
A pre-approval letter will show them how much money you realistically have at your disposal, making you less of a risk if they accept your offer.
Write a Letter to the Seller
If you’ve found a home you love, are pre-approved, and have put an offer in, you’re going to need to go the extra mile. The housing market is incredibly competitive. It’s recommended to write a letter to the seller, explaining more about you as the buyer and how you intend to care for the house.
This is a way to appeal to their emotions. There may be several other incredible contenders. But unless your offer stands out among the rest, you’re going to want to take some time with your letter.