This summer was huge for me – after 10 years of living on a college campus, I started a new job and in the process, moved off-campus for the first time in my adult life. Fortunately, due to solid pre-planning on my part and some flexibility from my employer who didn’t kick me off-campus immediately, instead of scrambling to rent an overpriced apartment in this college town, I took the plunge and bought my first home!
Even though this process went incredibly smoothly (especially with an awesome realtor on my side), there are definitely things I did not know going into it as a first-time home buyer, and things I could have done to be even better prepared.
1. Check Your Credit Score
This is good to do regularly anyway! There are several free sites out there where you can check your credit without paying and without impacting your score. It’s a myth that checking your credit score lowers it – sites like CreditKarma request a report on your behalf (known as a “soft inquiry”) which doesn’t impact your score (as opposed to a “hard inquiry” from a potential lender).
Having as high a score as possible is important for a number of reasons going into the home buying process. Having a solid credit score makes you a competitor for both loans and for homes with potentially multiple offers. A higher score also allows you a lower interest rate (since you’re less of a risk than peers with lower scores). Check your score and see what you can do to raise your score before applying for a loan.
2. Save Your Money
The down payment on your home is obviously a huge expense, but it pays off (no pun intended) in the long run. By making a 20% down payment, you are not only a better candidate for loans, but you also avoid having to pay private mortgage insurance (PMI), which can add $100 or more to your monthly payment. A larger down payment also means that you will have smaller monthly payments, which either makes your budget more manageable or makes it possible to pre-pay on your mortgage and pay it off quicker!
In addition to saving for a down payment, make sure you have money leftover – moving is expensive (hiring movers, gas to get to your new location, buying boxes and supplies), and you want to be able to account for potential repairs or needs that almost always arise when moving to a new place.
3. Get Pre-Qualified
You will need to be pre-qualified for a mortgage before making an offer on a home, and you can do this through a mortgage company or a bank. I went to a local savings bank to meet with their mortgage officer and had a brief conversation about my salary, savings, and debts, and he was able to generate a pre-qualification letter on the spot with an approximation of what I would be qualified to borrow from the bank.
This isn’t a commitment to this loan amount, or even to this lender, it’s just a letter verifying that a lender would allow you to borrow a certain amount of money. I ended up having to go with a different lender than the one who pre-qualified me and had no issues getting the amount I needed for a low interest rate. It’s important to get pre-qualified to see how much you would be able to borrow, but also keep in mind that this is a maximum amount, and it of course benefits the lender for you to borrow a higher amount because they profit from the interest. Don’t go wild just because you get pre-qualified for thousands more than you were thinking.
4. Account for Other Expenses
Before jumping for a home that is the full amount that you get pre-qualified for, consider what you can afford monthly. This includes your existing expenses, such as student loan payments, your phone bill, food and personal expense, as well as things like water, electricity, and home insurance that you may not be paying as a renter (or a person who was living on campus for free).
Consider your pre-qualification to be the maximum that the bank would lend you, rather the the price range that you should shoot for. In addition to this, you should budget out your monthly expenses to see how much of a monthly payment you would be able to account for.
5. Find a Realtor You Trust
Having a patient and kind realtor was a huge deal to me as I went into buying my first home, by myself. My lovely realtor spent a full day with me and my mom looking at homes in the area and really walked me through the home buying process.
Take the time to find someone who will be a great support system to you – check their website and reviews, or ask friends and family to refer you to someone. I liked my realtor right away because I sent her an inquiry on her website and she got back to me within just a few hours – quick e-mail turnaround is important to me, and I knew she would be responsive to what I assumed would be many questions and requests.
If you aren’t getting a good vibe from a realtor – it takes them a long time to call you back or schedule a meeting with you, or they are trying to push you to spend more than you are comfortable with – you’re within your rights to find someone else to work with. First-time home-buying can be stressful and overwhelming, so build a solid support system by finding a great realtor!
Are you ready to buy your first home? What are your tips for getting ready to be a first-time home buyer?