Purchasing your first home can seem like an insurmountable task these days. Having a plan in place can help ease these thoughts and put in motion a way to accomplish this milestone. Here are five essential tips to help you navigate the process and make smart financial decisions as a first-time homebuyer:
- Save for a Larger Down Payment
While the standard down payment is often 20%, many first-time homebuyers put down less. However, putting down a larger down payment has its benefits. It can reduce your monthly mortgage payment, help you avoid private mortgage insurance (PMI), and may get you better loan terms. Establishing a separate savings account and having automatic deposits setup from your paycheck can accelerate the savings process. Aim for saving at least 10-20% if possible for the down payment, but don’t be discouraged if that’s not attainable—just know that a larger down payment can save you money in the long run.
- Check Your Credit Score Early
Your credit score plays an important role in determining your mortgage rate and loan approval. A higher score typically means lower interest rates. Before you start house hunting, check your credit score and take steps to improve it if needed. Pay down debts, resolve any outstanding issues on your report, and avoid opening new credit accounts to boost your score. Be sure to limit purchasing other big items (car, boat, new credit cards) before home shopping as these will impact your score in a negative way.
- Get Pre-Approved for a Mortgage
Before you start looking for homes, get pre-approved for a mortgage. This gives you an idea of how much you can afford, which can help you avoid wasting time on homes out of your budget. It also makes you a more attractive buyer to sellers since it shows you’re serious and financially prepared. Just because the bank approves you for a certain amount, make sure the monthly payments stay within your real-life cash flow plan.
- Shop Around for the Best Mortgage Rates
Don’t settle for the first mortgage offer you get! Shop around with different lenders and compare rates, fees, and loan terms. Even a small difference in interest rates can save you thousands of dollars over the life of your loan, so it’s worth taking the time to find the best deal.
- First Time Buyer Assistance Programs
States and cities often have first time buyer assistance programs. Be sure to do some research beforehand to see if you qualify and how much they could help you with this purchase. Philadelphia’s community development organization (PHDC) has a grant called Philly First Home which currently offers assistance grants of up to $10,000 or 6% of the home’s purchase price, whichever is lower. Everybody is eligible for the grant; however, it is worth looking into to see where you can save! Be sure to check if there are any programs being offered in your area.
With saving for a larger down payment, monitoring your credit score, getting pre-approved, shopping for the best mortgage rate, and searching for assistance programs, you’ll be in a stronger position to make your first home purchase a long-term success. Happy house hunting!