Ready to buy your first home? First-time homebuyers have a few things to consider before shopping for a home. A home is one of the largest purchases that you will make in your lifetime so its important to get it right. Here are 5 tips to consider as you start your home buying process.
Tip 1: Check your credit
Before you even search for a home, lender, or look for picture frames to place on your new walls, you must check your credit report. Incorrect information could delay your mortgage approval process and screw up your entire moving process. Head over to AnnualCreditReport.com to get a copy of each of your credit reports for free. This will give you your credit reports, but not your FICO score. Lenders sometimes make the initial decision based on your FICO score. You can get your FICO score from myFICO.com. If you’ve noticed that you have some items to clean up, take the time to do that before you start home shopping. You can contact the credit bureaus to fix any incorrect information.
Tip 2: Create a homebuyers budget
Credit score ok? Great. It’s time to figure out how much home you can afford. Even though a lender will provide an approval number for you, that number is based on your gross income. But after taxes, retirement contributions, and expenses, your net income is what’s left. That’s what you should base your expectations on. The question is not, how much home CAN I afford, but how much home, SHOULD I afford? This calculator from CNN Money assumes that with an income of $52,000 and a 20% down payment, you can probably afford a home worth $271,000.
But what if you have monthly debt in the amount of $1,000? Well, you just slashed your home dreams in half. Now you should look for a home worth $102,000. Get rid of that debt! Here’s an easy way to figure out how much home you should afford. Use the same calculator but type a monthly savings goal in the “debt” section. Want to save $800 a month? Look for a home in the $136,000 range instead. Play around with a few assumptions until you find a monthly mortgage number that looks good in your household budget.
Tip 3: Create a homeowner budget
Being a homeowner is so much more than having a mortgage payment. There are repairs and expenses beyond the monthly mortgage payment. Real estate investor Paula Pant recommends saving 1% of the purchase price for repairs and maintenance. Purchased a $200,000 home? That’s $2,000 a year in expected costs. Take this money and put it aside for that rainy day you know is coming.
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Tip 4 and 5: Shop for a lender and Shop for a home
Now it’s time to shop around for a lender. At this point, you want what is called a pre-qual letter. It’s not a full mortgage, simply an estimate of how much the lender is willing to give you based on your financial qualifications. The reason these two tips are together is that they go hand in hand. Here's why. I had the opportunity to chat with a new home counselor on a recent visit to a Beazer new home site. Beazer Homes is one of the nation’s largest homebuilders and they have a program to help make the first time home buying experience easier.
Most home builders use one in-house lender and if you decide to purchase a new home from that builder, you are locked into using that sole lender. Beazer Homes offers the Mortgage Choices program so that you can shop for your own lender. They provide a list of preferred mortgage lenders and they keep the closing process on track. If you have friends that have purchased a home, you know that the closing process can be an elaborate one. Buying a home is not as easy as choosing a model and signing the paperwork.
There are forms upon forms upon forms.
Well, you get the picture.
The preferred lenders that Beazer Homes chooses to work with must meet strict performance criteria to stay a preferred lender. That means quick approvals and on-time closings. There have local lenders and national lenders on the list and you are never locked in to using just those lenders. The don’t pay or provide any kickbacks to Beazer Homes to stay on the list but they do have to meet that criteria.
Beazer builds some of the cutest homes in the nicest locations so if you are looking for a new home, I suggest you check them out. The Mortgage Choices program is perfect for first time home buyers.
Now you’re ready to find your very own home! Do you have more questions on what you need to know before buying a home? Leave them in the comment box below.
This post was created as part of a partnership with Beazer Homes.