First-time homebuyer? Follow these 5 steps

Buying your first home is a big decision. It can be exciting and also a little stressful. There’s a lot to consider before you start house hunting. What kind of house do you want? How much can you afford? How’s your credit score? Don’t worry.  Wherever you are in your homebuying journey, these steps can help you navigate the process.

1. Improve your credit score

Your credit score is a very important number, especially when it comes to making a major purchase like a house. To qualify for a conventional mortgage, you’ll typically need a minimum credit score of 620. The higher your credit score, the more likely it is that you’ll receive a lower interest rate, which will save you money.

To start, you’ll want to pull your credit report. You can receive a free copy of your credit report from each of the three nationwide credit bureaus by visiting annualcreditreport.com. Review your reports for accuracy. If you spot an error, be sure to contact the credit agency and report it.

Your credit score is largely based on two factors:

• Payment history: Just one payment made 30 days late can significantly harm your credit. The best way to protect yourself is to make payments on time.
• Credit utilization: The amount you borrow, as well as the percentage of your total borrowing limit you use, can impact your credit score.

Here are a few ways to get your credit score in better shape:

• Work to pay down debt and keep credit card balances low.
• Don’t move debt from card to card.
• Don’t open several new credit card accounts at the same time.
• Shop for one loan at a time.

2. Get prequalified by a lender

Next, you’ll want to determine how much you can afford to pay for a home by getting prequalified. Your lender will give you a ballpark figure based on the information you provide about your income. The lender may also look at your basic banking information or do a soft pull of your credit. 

The benefits of getting pre-qualified include:

• Confirmation that you’re a good candidate for the loan, so it eliminates the chances of a disappointing surprise.
• Knowing how much money you can potentially borrow eliminates a lot of guesswork. This means you can focus on the houses you can afford.
• Showing sellers that you are a serious buyer with a higher likelihood of being able to complete the purchase. You may also enjoy better service and have better bargaining power.

It’s important to understand that prequalification is not the same as pre-approval. Prequalification estimates how much house you can afford, while pre-approval is a conditional offer (but not a commitment) to lend you a specific amount of money.

3. Research homes and neighborhoods

Once you know how much you can spend, you can focus on what kind of home you want and where you might want live.

• Single-family homes: Single-family homes have open space on all four sides and aren’t attached to any other building.
• Condominiums: Condominiums or condos are separate living spaces within one larger complex. Special features may include common areas, fitness centers and recreation spaces. A homeowners association (HOA) usually determines rules, regulations and monthly assessment fees.
• Townhouses: Townhouses are typically two- or three-story dwellings that are attached to other units. They frequently come with small yards in the front and back. Like condominiums, townhouses generally have association fees that cover shared amenities.

When looking at homes, be sure to take all costs into consideration, including:

• HOA fees: These generally cover items such as grounds maintenance and landscaping, pool maintenance and trash removal.
• Maintenance costs: The age and condition of the home are key factors in how much you’ll likely pay in maintenance costs.
• Commuting costs: Are you close to major transit routes? Do you have easy access to public transportation?
• Property taxes: These can differ significantly depending on the neighborhood.

As you decide where you want to live, consider these neighborhood features:

• Schools: Homes near top-rated schools may cost more.
• Local amenities: These include restaurants, grocery stores, restaurants, shopping, trails and parks.
• Condition of nearby developments: Do they have well-kept yards and landscaping?

4. Work with a team of professionals

Now it’s time to put your plan into action with a team of professionals. Compare rates with different lenders, as well as the different types of loans to find the one that matches your goals. You may even be able to get a better deal through a financial institution if you have a good relationship with them. If you’re ready to get started, we’d be happy to help and answer questions like:

• What types of loans do you offer?
• How would I qualify?
• What are my down payment options?
• Will my mortgage rate be locked and for how long?

The next step is to get a real estate agent who is there to assist you as a licensed professional. They can help protect your rights, get you access to homes for sale and manage the complex buying process. When selecting a real estate agent, you should look for their:

• Local housing market knowledge
• Honesty
• Great communications skills
• Experience and licenses
• Satisfied customers

5. Ask your mortgage lender about first-time homebuyer programs

Lenders have a variety of mortgage options, from traditional loans to low-down payment loans.

• Fixed-rate mortgage: This is a traditional mortgage with a fixed rate for the entire term, generally 30 years.
• Adjustable-rate mortgage (ARM): This loan has an initial fixed rate. After the fixed-rate period ends, the rate becomes variable and adjusts at predetermined intervals.

As a first-time homebuyer, you may be able to take advantage of programs that can help get you into your first home without having to make the traditional 20% down payment.

Low down payment government-backed loans are insured or guaranteed by federal agencies and offer special terms, including low down payment or, in some cases, no down payment.

• FHA loan: Insured by the Federal Housing Administration and available to a broad range of borrowers, including those with lower credit scores
• VA loan: Guaranteed by the U.S. Department of Veterans Affairs, VA loans are available to qualified U.S. military service members, veterans, and eligible surviving spouses.
• USDA loan: Guaranteed by the U.S. Department of Agriculture (USDA), these loans provide up to 100% financing for eligible rural and some suburban homebuyers. Income and property location restrictions apply.

Many state and local programs are available for first-time homebuyers. Visit the U.S. Department of Housing and Urban Development’s State Information page at hud.gov/states, locate your state and select the Homeownership tile to find links to helpful resources.

Working together

Homeownership has many financial and lifestyle benefits – but it can be a challenge for any first-timer. That’s why it’s important to have a trusted financial partner – who can help you every step of the way. If you’ve reviewed your finances and are ready to make your move, reach out to your financial institution and ask about first-time buyer programs. They will be happy to help.