By Tomasz Nowicki
Moneywise
The process of purchasing a new house can be both daunting and costly, especially for first-time buyers. There are many steps to consider that may end up being repeated if house sales do not go through.
While spring is generally the best time to start searching as more properties become available, it’s worth preparing a few months in advance to ensure your finances are fully in order.
That is why Kris Bruynson, VP of Marketing at Moneywise, has shared his top tips for first-time home buyers to help them get the most out of their budget and save money along the way.
Start saving early
Start putting money aside as early as possible due to the multiple costs associated with buying a house, including the initial down payment. This depends on many things including the type of mortgage and the lender and can be between 3% and 20% of the purchase price. Excellent credit history and being first-time buyers can help bring this down.
Buyers also face closing costs for arranging certain loan services with the lender and finalizing the mortgage. These typically range from 2% to 6% of the loan amount, although the seller will sometimes pay a portion towards these costs. Finally, homebuyers should set aside money for final closing costs and move-in expenses like repairs, furnishings, and transporting furniture.
Creating a budget can help to reach the final goal of buying a house, allowing for calculations into how much needs to be put aside and what expenses can be cut down in the meantime. Do not enter the house purchasing process without certainty and stay within the budget to remain in control of finances.
Work on your credit score
Credit scores impact available mortgages, and the interest rate lenders offer. Lenders base this on the amount of available credit, including credit card limits, and how much of that borrowers currently use. Lower utilization means a higher final credit score, although it’s important to start working on this far in advance to allow time for changes.
Keeping credit card balances as low as possible will greatly improve your credit score. However, avoid opening new credit accounts while applying for mortgages, as this lowers the account age and could affect your credit history. Overdue payments also significantly impact credit scores, so pay off bills on time.
Review credit reports at least three months in advance before approaching a lender. Each credit agency should give out a free annual report if prompted. Resolve any errors as soon as possible, including previously paid debts, and use a credit monitoring service to be alerted for changes or suspicious activity.
Explore mortgage options and programs
Many different options exist for securing a mortgage that can vary depending on credit scores and the buyer’s previous history. Compare rates from multiple lenders to see what fits within your budget. Consider other factors, including online reviews for each lender, personal interactions with them, and the mortgage terms.
Decide which type of loan suits you best. For example, an FHA loan from the Federal Housing Administration allows for lower down payments and targets first-time buyers. However, a conventional loan can have fewer restrictions. Other options depend on location or income level.
Many first-time home buyer funds and down payment assistance programs can help cover down payment or closing costs. Some programs offer tax credits, also known as mortgage credit certificates, for buyers below a certain income level, or they offer grants that do not require repayment.
Get pre-approved for a home loan
After finding a suitable lender, it is important to prepare for getting pre-approved. This means that the lender will be ready to give over a loan of a certain amount before entering the house-buying process. Completing this step can offer a major advantage over other prospective buyers and a better indication of how much can be spent.
Pre-approval requires the lender to look over documentation relating to income and finances to check that everything is in order before they agree to a loan. Organizing paperwork in advance and having this information to hand can make the process much easier. Be sure to find all financial records and keep them together ready for this stage.
Home sellers are likely to find pre-approved buyers more attractive compared to anyone who has not started the application process yet or has not had their loan approved. It will also make applying for the loan easier after all parties accept the final offer.
Choose a suitable estate agent
While rushing into looking at houses after securing a loan may seem appealing, first-time buyers will benefit from carefully considering their estate agent. Their role involves searching for houses that fit the budget and specifications, alongside ensuring the negotiation and closing stages go smoothly for the buyer.
Having an estate agent who understands your requirements and is easy to work with can greatly simplify buying a house, which is why you should spend time finding a good one. They will be present at every future stage in the process, such as attending house showings, submitting offer letters, and finalizing the sale with both parties.
To find a good estate agent, get recommendations from other house buyers and look up online reviews. However, speaking to multiple agents in person and asking them specific questions relating to helping first-time buyers or their methods of finding new houses compared to competitors proves most beneficial.
Be able to negotiate
Some first-time buyers may hesitate to negotiate the price of a house they like due to their inexperience or belief that they do not hold much power in the process. Despite this, consider negotiation if the situation seems favorable, rather than immediately accepting the first offer.
The real estate agent is a valuable resource here, as they will know the local market. While negotiation may prove harder in areas where there are more buyers than houses, the home might have been on the market for a while, and the estate agent may have suggestions for offers that might appeal directly to the seller.
Simply asking for a price under the listing price is a starting point, although asking the seller to help cover closing costs or repairs might prove more valuable. Otherwise, you may convince them to lower the overall price to compensate for repairs that may be needed in the future. It never hurts to ask, as negotiation shows interest.
This is not a comprehensive list of considerations but should be enough to get you started on your way.
