Home buying is an exciting process, but first time home buyers often get overwhelmed by all the steps that are required. In addition, understanding the financial aspects of buying a home can be challenging. It is helpful to prepare in advance if you are a first time home buyer, learning what you can afford, how down payments work and getting pre-qualified.
Helpful Tips for First Time Home Buyers
Every homebuyer has a unique experience, and you should evaluate your own needs and preferences during a home buying process. Of course, working with a mortgage broker can help make the home buying process easier if it is your first time. They can offer advice, ensure you have all of your questions answered along the way and most importantly, connect you with home sellers for ideal properties that are within your budget.
However, there are also certain universal tips that every first time home buyer should follow to make the process of finding your ideal home for a friendly price easier, quicker and overall more effective.
Calculate What You Can Afford Before Your Search
Before you begin searching for your dream home, you should consider what you can reasonably afford. Many lenders require or strongly suggest that you do not exceed a monthly mortgage payment that is more than 30 percent of your monthly income after taxes. Many lenders also encourage prospective home buyers to have a debt-to-income ratio of less than 40 percent.
You can use a mortgage calculator to determine how much you can afford as well. For example, if 30 percent of your monthly income is $1,200 and you expect to pay approximately a four percent interest rate over the course of thirty years, then the cost of the home you purchase should ideally not exceed $250,000.
Understanding how much you can afford to comfortably spend on your home helps you avoid overspending and lowers the risk of defaulting on the loan or having financial complications in other areas of your life.
Compare Down Payments
The type of loan you receive dictates the amount that is due for a down payment. Certain loan programs such as VA and USDA home loans offer 100 percent financing, although these programs are more restrictive and harder to obtain. FHA home loans only require 3.5 percent down, but they require mortgage insurance with lower down payments. Conventional loans may be available at lower rates, but they typically encourage a 20 percent down payment.
If you have saved money, then paying more at closing can offer key benefits, such as avoiding mortgage insurance. If you prefer or are only able to come up with 3.5 percent down payment or less — which is the case for many first time home buyers — then an FHA, USDA, VA or conventional loan that offers lower down payments is your best option.
Being pre-qualified often gives homebuyers an edge over prospective buyers who are not if there are multiple offers on a home. For first time home buyers in particular, getting pre-qualified is important. A mortgage broker can help you obtain a pre-qualification letter, which lets home sellers know that you are serious about buying a home and able to receive funding for the home you are interested in purchasing.
Getting pre-qualified offers other benefits as well. In some cases, first time home buyers are able to lock in their mortgage rate ahead of time once they are pre-qualified. This means if rates go up, they are not obligated to pay the higher interest. However, if rates go down, they are still eligible to receive a lower interest rate.
Find Your Perfect Home Fit
After you determine how much you can afford to spend on a new home, determine the type of loan you wish to pursue and are pre-qualified, you get to start searching for your dream home. This is where the fun begins, and you and your spouse and family can browse for homes online, attend open houses and ultimately decide on which home you would like to call home for the foreseeable future.
At this point, you should have a good idea of the area you wish to live in and the type of home you would like to purchase. Be sure to consider the financial components of each home you look at and weigh the opinions of your family and friends as you decide on which home is the perfect home fit for you.
Work With MyLendingPal For First Time Home Buyers
MyLendingPal is here to make your life easier. If you are a first time home buyer, reach out to us today to get the help you need before you start your home buying journey. We can answer your questions on the initial call and provide you with more insights into how we can help you secure a home mortgage fast and stay within your budget.