Posted on May 12, 2022

The first time you start the home buying process, the logistics of making the purchase and getting a loan can become overwhelming. Making the right decisions takes preparation. Here are five tips to consider before you start:

1) Know your finances

Getting pre-approved for a loan can help you narrow down your house hunting and strengthen your bargaining position once you’ve found a home you want. It means that a lender has evaluated your finances and determined what you can afford in terms of a mortgage. The lender typically gauges your ability to pay based in part on your credit history, whether you have a steady income and your cash assets. It highlights the value of having a good credit score and track record. If you aren’t sure of your credit, be sure to check. A good score can also make you eligible for lower interest rates and the savings that result.

2) Choose a mortgage type

The choice between a fixed-rate and an adjustable-rate mortgage, or ARM, often depends on how long you plan to live in the home. A rate that’s fixed can make more sense if it’s relatively low and you plan to stay put for decades, since your monthly payment won’t change over the life of the loan. ARMs feature rates that can change periodically based on a market indicator, such as the prime lending rate. This type of loan can make more sense for buyers who plan on a shorter stay in the house. Plus, ARMs often carry lower rates, at least at first, making them cheaper than a conventional fixed-rate loan.

3) Don’t scrimp on a down payment

Paying 20% of the home’s value upfront tends to be a popular goal, as that lets you avoid paying for private mortgage insurance, or PMI. But it can be tough to save so much while paying rent and other bills. So lenders like Heritage Credit Union have first-time buyer programs that allow as little as 5% down. Bear in mind that PMI can add significantly to your monthly bill, and generally won’t go away until your equity reaches 20%.

4) Take a close look

As you discuss potential homes with a real estate agent, keep in mind you’re buying into a neighborhood, not just a home. So check out the area for its general vibe to be sure it’s a good fit. Once you settle on a choice, call in a home inspector to check things such as the structure, plumbing, wiring, heating and cooling systems, to identify deficiencies or repair needs that may affect the home’s value.

5) Consider total costs

What you end up paying when you buy a home will be more than the down payment and the loan. There are likely to be closing costs, including loan origination fees, taxes, title search and legal fees. Down the road, you’ll also have to pay for maintenance, repairs, insurance and property taxes. Make sure to look at the big picture to decide whether you can afford a home of your own, not just the loan.

Since buying a home can be the biggest financial decision of your life, preparing for the costs and the process is vital. As long as you know what to do and what you can pay, your future home can be in your hands sooner than later.

Source: https://www.heritagecu.org/news-and-tips/5-tips-for-first-time-home-buyers/

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