It’s springtime, which means "For Sale” signs are popping up in yards like this season’s daffodils. The route to buying a new home can seem less like a walk through the garden and more like a climb up a mountain, especially for first-time buyers. But it doesn’t have to be.
If you’re dreaming of becoming a homeowner, take care to prepare. Before you even step into that open house at the charming bungalow on the corner, follow these seven steps for a shortcut on the path to your first home.
1. Learn the finance lingo
A successful house hunt begins with learning your financial ABCs. There are many banking terms common to the mortgage process, and it could easily sound like a foreign language to the untrained ear. If you’re someone who likes to be fully prepared, you’ll want to know how to translate acronyms like PMI (private mortgage insurance) and APR (annual percentage rate) and navigate the difference between fixed- and variable-rate mortgages, also known as ARMs (adjustable-rate mortgages).
Of course, if you forget a term or don’t have study time in your future, your lender can help guide you through the ABCs of home buying.
2. Explore your loan options
Consider the pros and cons of each type of loan to find one that best matches your personal needs. Are you looking for payment consistency over a long period of time? A fixed-rate loan may be for you. Do you expect to move again within 5-7 years? With an adjustable-rate mortgage, you can lock in a lower interest rate in the early years of a loan and benefit from your shorter timeline.
Think about these factors to help you make a loan decision:
- Down payment availability
- Interest rates
- Length of loan
- Insurance costs
- Credit history
3. Edit Your Credit
You can obtain a free credit report through a credit bureau and make sure your credit history is complete and accurate. If it’s not, follow up with lenders or creditors to try to correct it.
A credit score is based on your payment and credit history and is used to qualify you for loans. The higher your credit score, typically the better the rate.
4. Don’t change horses midstream
As you prepare for likely the largest purchase of your life, avoid negatively impacting your credit score by making sweeping changes.
Most lenders recommend that just prior to and during your mortgage process you avoid:
- Making large purchases
- Switching jobs
- Opening a new credit card
- Closing any credit accounts
Lenders are looking for financial stability and consistency so they can gauge your likelihood of paying the loan long term.
5. Organize your paperwork
It could take some time to gather the paperwork necessary to secure a loan. Prepare now by digging out the documents you’ll need. Many financial institutions make it easy by providing years of history online.
While lists vary by lender, most will require the following to start a loan application:
- Monthly income
- Monthly debt payments
- Total debt you owe
- A total of your assets
- Social Security number
- Proof of employment
6. Know what you want in a home
Before you even start looking, prioritize your home preferences. This is the fun part. Identify your deal-breakers: fireplace, yard, garage, proximity to work or quality of schools. Research neighborhoods of interest. If you can, tour the area and talk to people who live there. Know what you need versus what you want as you begin the search for your home. And if you’re purchasing a home with your spouse or partner, be sure the two of you have the same priorities at the beginning of the buying process.
7. Pave the way with preapproval
Once you have an idea of what you are looking for, start the mortgage process to secure preapproval. Loan preapproval assures sellers that you are a credible and serious buyer. As a bonus, with preapproval, your closing time will be more efficient. Connect with a mortgage loan officer for details or begin the application process online.
Step-by-step, you are on an exciting hunt for your future address! Let these steps guide you directly to the front door of your new home.
First Financial offers an unique Community Builder loan, designed to provide affordable options for home-buyers with limited credit history, limited income or looking to purchase a home in a low- to moderate-income (LMI) area. Offering reduced closing costs, waived private mortgage insurance (PMI), and assistance with repairs and down payments, this flexible loan could help put your dream home within reach.
Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice