For many people, owning a home is part of the American dream. While renting has its perks, owning a home can help you build credit, create equity, and provide you a space that is all yours. Buying your first home is a major investment and should never be taken lightly. A lot goes into purchasing your first home including but not limited to choosing the right house, picking a real estate agent, finding a lender, and signing all the paperwork. Because of the inexperience of first-time home buyers, it is crucial that you take your time to ensure it is done properly. If you are considering purchasing a home for the first time, you want to make sure you take the right steps before you start to the process of looking for the right home.
Create a Budget
One of the most important things all first time home buyers should understand is the cost of home ownership. Owning a home and renting a home is completely different in terms of cost responsibility. If you are renting a home and your water heater goes bad, it is not your responsibility to fix it. When owning a home, the cost of broken appliances will fall solely on you as the homeowner. The best way to be prepared for these expenses is to create a budget. Determine what costs you will accrue when owning a home. The mortgage is a big part of the costs, but you also have to consider insurance, taxes, repairs, and more. By knowing what you can afford, it will help you find a home within your budget. Most lenders want to see that your front end ratio is 28% or less when determining how much you qualify for.
Collect Your Paperwork
There is a lot of paperwork involved in buying a home. Right from the start the lender you choose to hold your mortgage will ask for a considerable amount of paperwork. Typically, you will need to present them with copies of your pay stubs, tax returns, and bank statements. It is important to gather all this paperwork and keep it organized. The quicker you can accumulate all this paperwork for the lender, the faster and smoother the loan process will go.
Understand the Different Types of Mortgages
First-time home buyers qualify for more mortgage options than those who have purchased a home before. Ideally, you want to make sure you have a down payment of 20% so you do not have to worry about paying private mortgage insurance (PTI) and you can get the lowest interest rate. Even if all you have is 3% down, you can still qualify for a mortgage loan. An FHA loan is one of the most common mortgage options for first-time home buyers. It allows you to get a loan with very little money down. It is important that you talk to your lender to find out the many options you have for a loan.