Buying your first home after renting for years can be rather daunting in some ways. But millions of renters have been there before and became homeowners, so you can do it too. If you do your homework before you apply a home loan, you will have a good chance of becoming a homeowner quickly. It’s hardly a secret that banks and mortgage brokers are extending attractive programs for first time home buyers.
5 Prudent Steps for Renters to Make Before You Apply for a Loan as a 1st Time Home Buyer
However, there are several things that you should do before you even think about trying to apply for your home loan:
#1 Look at Your Financial Health
Before you begin looking at home online or in person, or applying for a loan, do a review of your financial health. The first thing you should review is your savings. It is not recommended by most financial experts to buy a home unless you have at least three months saved of living expenses. Then, look at how much is left in your savings and investment accounts that you could use for a down payment.
Also, review how much you spend each month and see where it is going. This will give you an idea how much you can spend on a mortgage payment. Be sure to account for all the money that you spend on utilities, activities for your children, food, car payments and maintenance, entertainment, clothing, retirement, etc. This will tell you where your home loan payment will fit in your budget.
#2 Check for Benefits for First Time Home Buyers
Before you apply for a home loan or meet with lenders, you should look for programs that can help you to afford your first home. There are programs available in most states for first-time home buyer mortgages that can help with down payments or loan programs, if you qualify. Also, educate yourself about some of the financial benefits of home ownership, such as being able to write off some or all of the interest on your home loan. This can make a difference in deciding between renting and owning a home.
#3 Talk to Mortgage Lenders
Before you apply for a loan, you should seek out a few lenders and start the conversation. It is important before you start to look at homes to have a mortgage pre-approval. Most realtors and home sellers will not take you very seriously unless you have a pre-approval from a lender showing that you can get a home loan for a certain amount. Most first-time buyers do not have all cash available for their home, so you will need a mortgage pre-approval letter.
The lender will look at your credit score, finances, income and other factors to determine how much of a home you can qualify for. They also will look at your debt and savings and advise if there are any programs in the state that can help you with a down payment.
You can do some of your research online, but it always helps to talk to a live human being at a lender in person or on the phone to get a real, detailed review of your financial situation.
#4 Shop for the Best Lender
It is important to not feel any loyalty to a particular lender. Shop around with a few lenders. Try community banks, credit unions, online brokers and large banks as well. Many people do not realize that fees on loans can vary quite a bit, as can mortgage interest rates.
For instance, an FHA backed loan is a common option for first time buyers because of ease of qualifying and low 3.5% down payments. The fees for an FHA loan can vary a lot depending upon whether you apply through a bank, mortgage banker or broker.
When you think that you have found a lender where you can get the best interest rate and fees, get a mortgage pre-approval. To do so, you will need to provide the lender with documents proving your financial situation, including W-2s, tax returns, pay stubs, bank statements and investment account information. With your FHA loan pre-approval, you will be able to show realtors and home sellers that you have the ability to buy the home for real.
#5 Have a Back Up Mortgage Lender
Qualifying for your home loan is not a 100% guarantee that you will get the best purchase money mortgage. It is possible for underwriting standards to change when you are in the process of getting the loan. There are cases where a first-time home buyer had signed the loan documents, and a day before closing were told by the lender that the program for the loan had been frozen. It could help to have another lender that has you qualified for a loan as well.
Once you have a mortgage pre-approval, you know how much you can afford and the maximum loan that you can get. Now you should find a real estate agent for the area where you want to buy a home. You also should focus on finding an experienced buyer’s agent who has a track record of negotiating a good deal for first time buyers in that particular area.
When you find a home that you want to make an offer on, take a close look at your budget again. This time, you should figure in closing costs, what it costs to move and any appliances and repairs that you will need before you can move in. You should not neglect the hidden costs including home inspection, property taxes and home insurance.
It is common for first time buyers coming from a rental to be ambushed by the higher utility costs of living in a larger home. Consider these mortgage and home buying tips when determining your budget.
After you have done all of these steps, you will be in good shape to get a home loan and to eventually close on your first home.
References: 10 Steps To Buying a New home