First-time home buyer tips to navigate thru the buying process less stressful and to save more money

Buying a home can be a worrisome experience and especially for first-time home buyers. This is one of the biggest purchase of your life and the process is complicated with unfamiliar events and can bring unforeseen expenses with it.

To help the first-time home buyer’s journey, we have compiled these tips for you. They will save you time, hassle and a lot of money.

1. Start by getting pre-qualified

Knowledge is power. Getting pre-qualified gives you a basic understanding about everything upfront.

2. Save for the downpayment money early

Twenty Percent downpayment is common, but many lenders now accept much less, and some first-time home buyer programs allow as low as 3% downpayment. By putting down less than 20%, it may bring higher costs and paying for private mortgage insurance. Even a small downpayment can still be big. For example, a 3% downpayment on a $300,000 home is $9,000. Use a downpayment calculator to help you to determine your loan amount better. A few tips for saving a downpayment include saving tax refunds, work bonuses. Setting up an automatic savings plan and using an app to track your progress will help you.

3. Check and know your credit/score

Your credit will be one of the key factors in whether you’re approved, and it will help determine your interest rate and possibly the loan terms. Check your credit before you begin the home buying process. Review your credit reports and dispute any errors that could be dragging down your credit score. Look for any opportunities to improve your credit like paying off small debts.

4. Hold off any new credit activity

Any time you open a new credit account, whether to take out an auto loan or get a new credit card, the lender runs a credit report (hard pull inquiry), which can temporarily lower your credit score. If you’re applying for a mortgage loan soon, avoid opening new credit accounts to keep your score from falling.

5. Figure out how much home you can afford

Now, before you start looking for your dream home, you need to know what’s actually within your price range. Use NexaMortgage.com’s home affordability calculator to determine how much you can afford to spend on a mortgage payment.

6. Explore downpayment options

Not enough money for a downpayment? First-time home buyer programs are plentiful, including federal mortgage programs with Fannie Mae and Freddie Mac that allow loans with only 3% down, plus Federal Housing Administration loans and Veterans Affairs loans. You could also try crowdfunding or asking if family members and friends are willing to pitch in with a gift. Nonprofit Mortgage Company offers a DPA (Downpayment Assistance Program) which is a true gift to you and does not delay the mortgage process.

7. Look into state and local assistance programs

In addition to federal programs, many states offer assistance programs for first-time home buyers with perks such as tax credits, low down payment loans and interest free loans up to a certain amount. Your county or municipality may also have first-time home buyer programs. (Some of these programs carry a much higher interest rate and aren’t attractive)

8. Calculate for your closing costs

Additionally to saving for a downpayment, you will need to budget for the closing cost money required to close on your mortgage, which can be quite a lot. Closing costs can run between 2% – 5% of the loan amount. You can shop around and compare prices for certain closing expenses, such as homeowner’s insurance, home inspections and title searches. You can also ask the seller to pay for a portion of your closing costs.

9. Put away more money for after move-in

Once you have saved for your downpayment and budgeted for the closing costs, you should have buffer amount to pay for what will go inside the house, like furnishings, appliances, rugs, updated fixtures, new paint and any other touches you will want to have when you move in.

10. Determine what type of property to buy

Is it a single-family home with a large lot or a lot of room? Are you willing to sacrifice space for less maintenance and receive extra amenities? Don’t mind paying a homeowners association fee? A condo or townhome could be a better fit?

11. Understand your mortgage options

Is a 30-year, fixed rate mortgage? Or is another loan type right for you? Can you afford larger monthly payments, you can get a lower interest rate with a 20-year or 15-year fixed loan. Perhaps you may prefer an adjustable-rate mortgage, which is riskier but guarantees a lower interest rate for the first few years of your mortgage.

12. Compare APR mortgage rates

Too many first-time home buyers get a rate quote only from one lender, but this often leaves money on the table. Comparing mortgage rates (APRs) from at least three lenders can save you over $3500 in the first five years of the mortgage loan, according to the Consumer Financial Protection Bureau. Get at least three quotes and compare both rates and fees or use a mortgage broker who has all options available for you, helps you to compare and get the best deal for you. Check Today’s Rates.

13. Decide if paying points to buy (pay) down the interest rate makes sense

Lenders often allow you to buy discount points (1% equals 1% of the loan amount), which means prepaying interest upfront to secure a lower interest rate. There may also be an option for negative points, in which the lender pays some of your closing costs in exchange for a higher interest rate. How long you plan to stay in the house is one of the key factors in whether buying points makes sense. You will need to do some calculations or speak to a mortgage broker or loan officer to help you decide if buying points is worth it for you.

14. Get a pre-approval letter

You can get prequalified, which simply gives you an estimate of how much a lender may be willing to lend based on your income and debts. But as you get closer to buying a home, it’s smart to get a pre-approval letter, where the lender thoroughly examines your finances and confirms in writing how much the lender is willing to lend you and at what terms. Having a pre-approval letter in hand makes you look much more serious to a seller and can give you an upper hand over buyers who haven’t taken this step.

15. Hire a competent and professional real estate agent

You will be working closely with your real estate agent, so it’s important that you find someone you get along with well. The right buyer’s agent should be highly skilled, motivated and knowledgeable about the area.

16. Stay under your pre-approval amount limit

As your agent shows you homes, look for properties that cost a little less than the amount you were approved for. While you can technically afford that amount, it’s the ceiling and it doesn’t account for a broken washer or dryer or any other expenses that arise during homeownership, especially right after you buy. Rather than maxing out that amount, set a lower purchase budget to leave yourself a little room for unexpected costs.

17. Find the right neighborhood for you

Finding the right neighborhood is just as important as locating the right house. Consider Deed Restricted neighborhoods. This will avoid that your future neighbor does not paint his house in signal orange which will make your property less marketable and value loss will take place. Research the schools, even if you don’t have kids, since that affects a home’s value. Look at local safety and crime statistics. How close are the nearest hospital, pharmacy, grocery store and other amenities you’ll use? Also, drive through the neighborhood on various days and at different times to check out traffic, noise and activity levels.

18. Learn the most at an open house

Use this as another opportunity to scope out the neighborhood and your potential neighbors. During the open house, pay close attention to the home’s overall condition and look for any smells, stains or items in disrepair. Ask a lot of questions about the home, such as when it was built, when items were last replaced and how old key systems like the air conditioning and the heating are. If several other potential buyers are viewing the home at the same time as you, don’t hesitate to schedule a second or third visit to get a closer look and ask more questions. Your real estate agent can provide you a deeper insight into the property. Before you consider to make an offer a public record search could help you to find possible hurdles like open permits etc..

19. Think about buying a home for tomorrow

It’s easy to look at properties that meet your current needs. But if you plan to start or expand your family, it may be preferable to buy a larger home you can grow into. Consider your future needs and wants and whether this home will suit them. Getting older might exclude a two story home with a staircase.

20. Do not get caught up by little things

It is easy to get caught up on little details like paint color, fixtures and carpets. These features are easy to change once the home is yours, so don’t let those little details get in the way. Focus on your vision and what it can become.

21. Make compromise

It’s rare to find a house that’s perfect in every way, so think carefully about what you’re willing to compromise on and what you’re not. Perhaps no walk-in closet in the master bedroom is a deal breaker, but an outdated guest bathroom will be tolerable until you can renovate it.

22. Execute a strong offer

Your real estate agent can help you with this, but consider how much under or over the asking price you’re willing to pay to obtain your dream home. If there are multiple bids, think about tactics to win over the seller, such as a personalized letter. Write a strong deposit amount check to show you are serious about buying the home. Provide your pre-approval letter with the offer if you are financing part of the transaction. Offer a sooner than later closing date. Perhaps make an “As IS” offer?

23. Stay away from a bidding war that exceeds your budget

In a competitive real estate market with limited inventory, it’s likely you’ll bidding on houses that get multiple offers. When you find a home you love, it’s tempting to make a high-priced offer that’s sure to win. But don’t let your emotions take over; stick to your purchase budget to avoid getting stuck with a mortgage payment you can’t afford. Emotional decisions can be expensive so get a real estate agent that knows how to make the best offer for you.

24. Negotiate a win/win deal

A lot can be up for negotiation in the home buying process, which can result in major savings. Are there any major repairs you can get the seller to cover, either by fully handling them or by giving you a credit adjustment at closing? Is the seller willing to pay for any of the closing costs? If you’re in a buyer’s market (more properties for sale on the market than buyers), you may find the seller will bargain with you to get the house off the market. In a seller’s market (more buyers than properties on the market) the seller will receive asking or over asking price.

25. Shop and buy homeowners insurance

Before you close on your new home, the lender will require you to buy homeowners insurance. Shop around and compare rates to find the best price for the policy. Look closely for what is covered in the policies; going with a less expensive policy usually means fewer protections and more out-of-pocket expenses if you file a claim. Be aware that your insurer can drop your property if the insurer thinks the home’s condition is not in good condition, so you may have to be prepared to find a new policy quickly if it sends someone out to look at the property and is not happy with the condition. Also, flood damage is not covered by homeowners insurance, so if your new home is in a flood-zone area, you may want to buy separate flood insurance.

26. Understand the limits of a home inspection

Once your offer is accepted, you will pay for a home inspection to examine the property’s condition inside and out. But not all inspections test for things like radon, mold or pests, so be sure you know what’s included. Make sure the inspector can access every part of the home, such as the roof and any crawl spaces. Attend the inspection and pay close attention. Don’t be afraid to ask your inspector to take a closer look at something and ask questions.

27. Prepare for closing

Your closing date was set and your mortgage loan process is in full motion. Do not open any new credit accounts until you have closed on your mortgage since this could void the loan commitment.