Buying a home in the US for the first time can be quite overwhelming. You’re excited but confused, not knowing where to begin. It’s natural to be anxious about making a major mistake, so you try to be as cautious as possible.
Therefore, navigating the real estate market successfully takes a proper strategy, financial planning, and a lot of awareness. To help you make the right choice and get the home of your dreams, we will take you through the crucial steps of buying a house for the first time in this blog.
A Guide to First-Time Home Buying
Deciding to buy a home is a life-altering event, and it is understandable if you want to be prudent in your decision-making process. Here are a few things to keep in mind:
1. Evaluate Your Finances
Purchasing a home implies you’ll be spending most of your savings. Hence, it’s considered to be a lifetime investment. Only some people are financially strong enough to pay the full amount, so exploring financing options is the best alternative. If you are considering acquiring a mortgage loan, you will need to check for a few things:
- Credit score – A high credit score (around 620) increases your chances of qualifying for the lowest interest rates and favorable loan terms.
- Debt-to-income ratio (DTI) – A higher DTI ratio implies a higher interest rate on your mortgage. A debt-to-income ratio of 35% or less is considered to be ideal.
- Down payment – The type of mortgage you select and the lender will determine your down payment requirement. You can also be eligible to pay a down payment as low as 3%, but even such a small amount can be difficult to pay from your pocket.
- Personal savings: You must have the money for closing costs set aside. This may also cover furniture removal or repairs before moving in.
2. The Type of Mortgage You Need
Various types of mortgage loans are available, each with its own set of terms and conditions. Understanding the differences is essential to choose the one that suits you best.
- Fixed-Rate Mortgages
Fixed-rate mortgages are the most traditional type of mortgage. With this loan, your interest rate remains constant and usually lasts 15 or 30 years. This stability provides predictability in your monthly payments, making budgeting easier.
- Adjustable-Rate Mortgages (ARMs)
On the other hand, adjustable-rate mortgages have interest rates that can change periodically. The interest rate of ARMs is usually lower than fixed-rate mortgages initially but can increase over time.
- FHA Loans
Federal Housing Administration (FHA) loans are government-backed mortgages designed to assist first-time homebuyers and those with lower credit scores. They typically require a lower down payment and have more lenient qualification criteria.
- VA Loans
The Department of Veterans Affairs (VA) offers VA loans exclusively to eligible veterans, active-duty service members, and their spouses. VA loans often feature no down payment requirement and competitive interest rates.
3. Compare Mortgage Loan Offers
Since mortgage interest rates regularly change and vary from one lender to another, you should consider comparing at least three mortgage loan offers. Almost every mortgage loan provider can offer you a free quote upon sharing vital details like the required loan amount, down payment cost, and credit score.
4. Get Preapproved for a Mortgage
After getting quotes from different mortgage loan providers, you need to know which is the most convenient for you. The next step is getting preapproved for a mortgage. Obtaining a pre-approval is necessary as property sellers may only consider your offer once they are assured you are financially prepared. A pre-approval is an initial commitment provided by a mortgage loan lender to offer you the required amount of money. However, it is not the final offer.
5. Find a Reputable Real Estate Agent
When buying a property, contacting a professional real estate agent is advisable. Experienced property agents are well-versed with the local housing market trends and can provide vital information about your preferred neighborhoods and surrounding areas. When choosing a real estate agent, make sure to consider important factors like:
- Certification, if any
- If they specialize in any property, for example, bungalows, condos, and apartments
6. Choosing Your Dream Home
Now, this is the most exciting part. It’s time to look for your dream home! But first, speak to your real estate agent about your budget and vital requirements. This will save you time and effort since you can only look at properties that meet your needs. Make sure to visit the property yourself and take a proper tour of the neighborhood. You want to make sure how near or far the ATM, school, or hospital is from your dream house.
7. Get Ready to Make an Offer
After surveying different properties, you must have mentally finalized one due to its convenient location or within your budget. But now, it’s time to make a real offer. You can consult your agent to determine an attractive offer. Since the real estate industry is competitive, consider offering slightly above the asking price. Hence, make sure the offer price is contending.
Provide a deadline for the seller to revert to your offer. You may also include certain contingencies like home inspection or appraisal. This implies that if the property’s market value is lower than your offered price or significant issues arise after the home inspection, you can turn down the deal without losing your deposit.
8. Apply for Your Mortgage
If your offer is accepted, applying for a mortgage is your next step in buying a house for the first time. You will receive a loan estimate after submitting your application. The loan estimate will include the loan terms, approximate closing costs, and other important details. If you need help understanding any calculation, feel free to clarify with your mortgage loan lender.
9. Buy a Homeowners Insurance Policy
Congratulations on reaching the final step of the home-buying process. The last thing you want to do is to protect your extremely valuable possession. Homeowners insurance aims at protecting your home and belongings from various risks. It offers financial security in case of damage, theft, or certain liabilities related to your property. Evaluate your needs carefully to secure an adequate amount of policy coverage.
Becoming a first-time homebuyer is a significant step that involves careful planning and consideration. In this guide, we have provided valuable insights into securing a mortgage loan, finding your dream home, and navigating the complexities of homeownership. Owning a home is not just about the property itself; it’s about creating a place to call your own, building equity, and enjoying homeownership’s stability and security.
If you are looking for reliable and professional mortgage loan advice, contact Bond Street Mortgage. We have a wealth of experience in helping homeowners close their deals seamlessly, save on their mortgage financing, and make the entire home-buying process stress-free.