According to Aperion Care, 85 percent of millennials (those who are 21 to 37 years old in 2018) expect to own a home at some point in their lifetime. However, having the intent to buy a home in some vague, distant future is hardly the same as crafting a plan to make home ownership a reality. Here are a few tips for new home buyers to help ease the transition from daydreaming to closing.
Start Saving Early
While down payments of less than 20 percent are possible, we don’t recommend them. Paying as little as 3 percent down may be attractive at a glance, but it often means you are paying much more in the long run. Toy with a down payment calculator to figure out your goal amount, and remember that the more you pay upfront, the more you’ll save later on. Starting to save up sooner rather than later makes this much easier to do.
Check Your Credit
Your credit rating is one of the most important factors in determining what kind of mortgage loan you will qualify for. You need to know this information when going into the home-buying process. If you find any errors or possible mistakes on your score, challenge them — look for every angle you can find to improve your score.
Pause New Credit Activity
Your lender performs a hard inquiry anytime you open a new credit account, including when you take out a car loan, get a new credit card, or apply for a mortgage. These all ding your credit score temporarily. If you plan to do any of these, make sure they take place after your mortgage loan approval, and not before. The temporarily lowered credit score will limit what you qualify for.
Budget Your Closing Costs
The closing costs of your mortgage generally run between 2 and 5 percent. So, on top of saving for your down payment, you want to make sure you have enough saved up for closing. Create a detailed budgeting plan while you shop around to find the best deals for title searches, home inspections, and homeowners insurance, but nothing beats having a little bit more padding to make the expenses easier to bear.
Research Mortgage Options
A standard 30-year mortgage isn’t for everyone. If you can afford it, a 20- or 15-year mortgage will give you a lower interest rate. And in some circumstances, an adjustable-rate mortgage may be the better choice. Know your circumstances and consult with a trusted mortgage planner to determine the best home loan options to fit you — just because you get an offer doesn’t mean that it’s the best option for you.
Organize Your Documents
Home buyers must have proof of their income and taxes when applying for a mortgage. Usually, mortgage lenders will require two recent pay stubs, W-2s from the two previous years, bank statements from the past two months, and tax returns. They will want every single page of these statements.
Get a Preapproval Letter
Being prequalified gives you an estimate of how much a lender may be willing to offer you based on your debts and income. With pre-approval, on the other hand, the lender examines your finances and confirms in writing exactly how much they are willing to lend you and what terms they will provide that loan under. It’s the difference between an estimate and a quote — the latter is always more accurate.
Stay Under Your Limit
Pushing right up against the ceiling of what you are pre-approved for is always a mistake. When your agent is showing you homes, be sure to stick to properties that are a little bit below your pre-approval level. While you can technically afford the houses right at the limit, that is the absolute ceiling of what you can spend. It accounts for move-in costs, repairing broken appliances, and other expenses that materialize when you first move in. Give yourself a little breathing room to make sure that you can cover any potential obstacles.
Whatever you decide to do, act deliberately with each step. Do your research, have your paperwork ready, know what you want, and work with someone you trust. Your first home is an investment that for most will last a lifetime, if not at least several decades. Every step of preparation contributes to making that investment go more smoothly.
For further assistance in purchasing your new home, contact us by email or call us at (206) 799-9966!
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