The thought of buying your first home can feel equally thrilling and frightening. Never fear, we’re here with seven tips first-time home buyers need to know.
1. Get pre-qualified before buying a home
Finding the perfect home is the part we all look forward to. But before you get there, start with an estimate of how much you can borrow. In a pre-qualification, your lender will review your financial picture and then give you an idea of the amount you could borrow.
You can meet with a mortgage lender to get pre-qualified long before you’re ready to purchase. In fact, earlier has some real benefits. You and your lender can discuss steps to take now to prepare. You’ll have an idea what your payments might look like. And, your lender can answer any questions you have.
At The Bank Missouri, we provide pre-qualifications at no cost to you.
2. Make a budget and consider new debt carefully
A pre-qualification doesn’t always show how much you can actually afford. It includes your income and debt, like car payments or student loans. It does NOT include discretionary spending. Do you eat out for lunch every day or ‘brown bag’ it? Do you take big vacations every year or have minimal entertainment expenses? You need more than a pre-qualification to decide how much house you can afford; you need a budget.
Setting and following a budget can help make homeownership a reality. Be sure to review your current expenses and debt, as well as any new planned for the future. You will want to make sure you can afford your home five years from now, as much as today.
Before taking on any debt, consider if it aligns with your goals. Will it impact your ability to make your home payment in the future or to save up for home maintenance? Will it have a negative impact on your credit score? If you’re preparing to buy a home, talk with your lender before making large purchases or taking on new debt.
3. Grow your emergency fund
You’ll want your budget to also include building up an emergency fund. Having 3-6 months’ salary saved can provide a safety net. That may sound like an overwhelming amount, but start where you can and work up to saving more each month. Your emergency fund will be there for you if you have unexpected expenses or changes in employment once you own a home.
4. Continue to make payments on time
Keep making your rent and other payments on time. You will want your credit score to be at its best because it may impact the interest rate of your mortgage. And worse, if your credit score dips too low, you may have trouble getting a home loan.
Payment history is just one part of your credit score. Learn more about what makes up your credit score.
5. Contact your lender before making big purchases or taking on new debt
You’ll want to be cautious with larger purchases or new debt as you work toward getting a mortgage. Taking out a new loan, including financing offered at a store, could have a negative impact. You’ll also want to avoid big changes to the amount of available credit you use. For example, if you normally carry a low balance on a credit card and then charge an expensive vacation. Even using a large portion of your savings could be an issue. Before making any large purchases or opening new lines of credit, talk to your lender first.
Our mortgage lenders specialize in home loans and are ready to guide first-time homebuyers every step of the way. Be sure to stay in touch with your lender along the way. It’s what we’re here for! Good communication can help get your loan to the finish line as soon as possible.
6. Provide requested documentation in a timely manner
As your application progresses, your lender will let you know what's needed and when. Taking care of documents and signatures promptly can help keep your closing on track. If you're unsure about anything, your lender is there to help.
7. Finalize homeowners’ insurance 10 days prior to closing
Homeowners’ insurance is protection you don’t want to risk going without. And, if you’re taking out a loan, you probably won’t have a choice. Lenders generally require you to have a policy before you finalize your loan.
Work with an insurance agent to determine the type of policy and coverage you’ll need. Be sure to give yourself enough time to carefully select your coverage and have it in place 10 days prior to your loan closing date.
Preparing to buy your first home doesn’t have to feel overwhelming. Let our team answer all your questions. Our experienced lenders are ready to help guide you through the process.