First Time Home Buyer Dos
Posted by Matt Barker on Tuesday, September 16, 2008 at 12:44 AM
By Matt Barker / September 16, 2008
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If you’re considering purchasing your first home, there are some things you can do to increase the chances your loan is approved and at a reasonable interest rate. Here are some “to do’s” for people considering buying their first home or their next home.
Do make sure that you take the time to educate yourself about what the home buying process involves. Knowledge is truly the key to having a smooth transaction. The more familiar you are with the process of buying a home, the more easily it will go. Absorb as much information about home ownership as you can. There are many educational seminars offered by government programs or even by real estate agencies which will tell you a lot of the information you need to know.
Do make sure that you have clean credit. Having bad credit doesn't mean that you absolutely won't be able to get a loan, but it does most likely mean that you will have to pay a higher interest rate. Additionally, it may mean that you may have to collect a larger down payment for the home. Before your potential lender has that chance to look at them, order copies of your credit reports and scores from the three bureaus. Review all the information contained in them to ensure that it is accurate. If you find any errors, follow the bureau’s instructions to have the matter investigated and corrected. This way, there won’t be any unpleasant surprises when you finally apply for your mortgage loan.
Do pay your bills on time. Cleaning up credit is just one part of the equation, maintaining is another. For as long as you can before and during the home buying process, make all of your scheduled bill payments in full and on time. The critical bills a lender looks at are your rent or mortgage payments, then installment loans like car payments and student loans, and lastly revolving payments like credit cards. The lender will run your credit once again directly before closing and if you show recent late payments or new purchases, it will most likely slow your application approval and may even change the program for which you qualify.
Do hire a professional. The purchase of a home is one of the largest financial decisions an individual will ever make. Though you may have a cousin in the business or your neighbor gave you their card, this purchase of your first home is far too important to trust to the first real estate agent you meet. When you choose someone to represent you throughout the home purchase process, hire an experienced Realtor. Make sure that you choose someone who is an expert on the neighborhood in which you would like to live. Don’t rush this decision, take your time to ask lots of questions and interview several Realtors before you make a final decision on one.
Do get all necessary documentation in order. By having all the papers you need on hand, you're home loan approval process will more quickly and easily. Some of the documents that you will need to have ready are W2’s for the last 2 years you’ve worked, your last month's pay stubs, and the last 3 months statements for checking accounts, savings accounts, money markets, stocks, bonds, and retirement accounts. If you are self-employed, you will also need your last 2 years personal and business tax returns, and your year to date profit and loss statement.
Do explore your financing options. There are hundreds of different types of mortgages available to suit many different types of qualified borrowers. Beyond choosing a fixed rate mortgage with a 15-, 20- or 30-year term, there are fixed-rate mortgages, adjustable rate mortgage, interest-only mortgages, a balloon mortgage, hybrid mortgages, and more. Then there are FHA Loans and VA Loans available for some buyers. Different lenders offer different types of mortgages with their own individual approval guidelines. Unless you’re positive that you can easily afford the higher monthly cost of a 20 or 15-year mortgage, always choose a 30-year fixed rate mortgage. Since most loans have no pre-payment penalty, you can always pay the 30-year mortgage off more quickly if you so choose.
Do get pre-approved for a mortgage. Getting pre-qualified for a mortgage loan will let you know how much you can spend on a home. Pre-qualification can make you more attractive to the buyer and give you an edge over other buyers who may make an offer. But once you’ve gone through the pre-qualification process and start looking for a home, you should begin the pre-approval or full mortgage application process. Being pre-qualified will make the process of approval easier because most of the paperwork will already be done. Having a loan approval will tell buyers and their real estate agents that you are serious about your offer on the home.
Do create a budget. Once you know about how much your pre-approved for, its time to figure out how much house you can afford. This may be different than the amount for which you were approved. Just because a mortgage lender approved you for a loan of a certain amount doesn’t mean you can afford to make the payments every month. Take the time to create a cautious and comprehensive budget to determine how much you can afford to spend on a home.
Do know that your costs will go up. When you’re creating your budget, take into account the fact that other costs may go up as well. Extra costs which will be incurred include the cost of insurance, taxes, general upkeep, and repairs. Depending on where your future home is located, there may be monthly homeowner’s association fees. One thing which may help you look at other hidden costs is that you may need to think about increasing your life insurance to cover the cost of the mortgage should something ever happen. It is these extra costs that first time home buyers may not have considered when determining if it’s within their means to purchase a home.
Do consider the home you want. You know where you want to live and how much you want to spend. Now is the time to think about what type of home you want. Your Realtor or broker will be a big help when it comes to this. Is your Dream Home a town house, condominium, or single family home? Is there a style or design of home you really like? How many bedrooms and bathrooms do you need? How much space will you require? Is the quality of the local schools a factor? Is your family going to expand soon? Are you willing to adhere to the rules and regulations of homeowner’s association communities? These and more are all aspects which must be considered when purchasing a home.
Do make sure that you take the time to educate yourself about what the home buying process involves. Knowledge is truly the key to having a smooth transaction. The more familiar you are with the process of buying a home, the more easily it will go. Absorb as much information about home ownership as you can. There are many educational seminars offered by government programs or even by real estate agencies which will tell you a lot of the information you need to know.
Do make sure that you have clean credit. Having bad credit doesn't mean that you absolutely won't be able to get a loan, but it does most likely mean that you will have to pay a higher interest rate. Additionally, it may mean that you may have to collect a larger down payment for the home. Before your potential lender has that chance to look at them, order copies of your credit reports and scores from the three bureaus. Review all the information contained in them to ensure that it is accurate. If you find any errors, follow the bureau’s instructions to have the matter investigated and corrected. This way, there won’t be any unpleasant surprises when you finally apply for your mortgage loan.
Do pay your bills on time. Cleaning up credit is just one part of the equation, maintaining is another. For as long as you can before and during the home buying process, make all of your scheduled bill payments in full and on time. The critical bills a lender looks at are your rent or mortgage payments, then installment loans like car payments and student loans, and lastly revolving payments like credit cards. The lender will run your credit once again directly before closing and if you show recent late payments or new purchases, it will most likely slow your application approval and may even change the program for which you qualify.
Do hire a professional. The purchase of a home is one of the largest financial decisions an individual will ever make. Though you may have a cousin in the business or your neighbor gave you their card, this purchase of your first home is far too important to trust to the first real estate agent you meet. When you choose someone to represent you throughout the home purchase process, hire an experienced Realtor. Make sure that you choose someone who is an expert on the neighborhood in which you would like to live. Don’t rush this decision, take your time to ask lots of questions and interview several Realtors before you make a final decision on one.
Do get all necessary documentation in order. By having all the papers you need on hand, you're home loan approval process will more quickly and easily. Some of the documents that you will need to have ready are W2’s for the last 2 years you’ve worked, your last month's pay stubs, and the last 3 months statements for checking accounts, savings accounts, money markets, stocks, bonds, and retirement accounts. If you are self-employed, you will also need your last 2 years personal and business tax returns, and your year to date profit and loss statement.
Do explore your financing options. There are hundreds of different types of mortgages available to suit many different types of qualified borrowers. Beyond choosing a fixed rate mortgage with a 15-, 20- or 30-year term, there are fixed-rate mortgages, adjustable rate mortgage, interest-only mortgages, a balloon mortgage, hybrid mortgages, and more. Then there are FHA Loans and VA Loans available for some buyers. Different lenders offer different types of mortgages with their own individual approval guidelines. Unless you’re positive that you can easily afford the higher monthly cost of a 20 or 15-year mortgage, always choose a 30-year fixed rate mortgage. Since most loans have no pre-payment penalty, you can always pay the 30-year mortgage off more quickly if you so choose.
Do get pre-approved for a mortgage. Getting pre-qualified for a mortgage loan will let you know how much you can spend on a home. Pre-qualification can make you more attractive to the buyer and give you an edge over other buyers who may make an offer. But once you’ve gone through the pre-qualification process and start looking for a home, you should begin the pre-approval or full mortgage application process. Being pre-qualified will make the process of approval easier because most of the paperwork will already be done. Having a loan approval will tell buyers and their real estate agents that you are serious about your offer on the home.
Do create a budget. Once you know about how much your pre-approved for, its time to figure out how much house you can afford. This may be different than the amount for which you were approved. Just because a mortgage lender approved you for a loan of a certain amount doesn’t mean you can afford to make the payments every month. Take the time to create a cautious and comprehensive budget to determine how much you can afford to spend on a home.
Do know that your costs will go up. When you’re creating your budget, take into account the fact that other costs may go up as well. Extra costs which will be incurred include the cost of insurance, taxes, general upkeep, and repairs. Depending on where your future home is located, there may be monthly homeowner’s association fees. One thing which may help you look at other hidden costs is that you may need to think about increasing your life insurance to cover the cost of the mortgage should something ever happen. It is these extra costs that first time home buyers may not have considered when determining if it’s within their means to purchase a home.
Do consider the home you want. You know where you want to live and how much you want to spend. Now is the time to think about what type of home you want. Your Realtor or broker will be a big help when it comes to this. Is your Dream Home a town house, condominium, or single family home? Is there a style or design of home you really like? How many bedrooms and bathrooms do you need? How much space will you require? Is the quality of the local schools a factor? Is your family going to expand soon? Are you willing to adhere to the rules and regulations of homeowner’s association communities? These and more are all aspects which must be considered when purchasing a home.
There are many factors to consider before you commit to buying a home. Though this list is not entirely comprehensive, completing these steps will help you on your way toward owning your first home or your next home. Please take a look here at some other information we have for first time home buyers. Also, there is some information in this previous post about first time home buying programs for people planning on purchasing a home in St. Paul.
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