Buying A Home For The First Time?

Start saving early

When calculating how much money you need to buy a house, consider one-time expenses as well as new, recurring bills. Here are the main upfront costs to consider when saving for a home:

• Down payment: Your down payment requirement will depend on the type of mortgage you choose and the lender. Some conventional loans aimed at first-time home buyers with excellent credit require as little as 3% down. But even a small down payment can be challenging to save. For example, a 3% down payment on a $300,000 home is $9,000. Use a down payment calculator to decide on a goal, and then set up automatic transfers from checking to savings to get started.

• Closing costs: These are the fees and expenses you pay to finalize your mortgage, and they typically range from 2% to 6% of the loan amount. Your closing costs on a $300,000 loan could be between $6,000 and $18,000. That’s additional money you’d have to pay, on top of your down payment. In a buyer’s market, you can often ask the seller to pay a portion of your closing costs, and you can save on some expenses, such as home inspections, by shopping around.

• Move-in expenses: Remember to budget for moving costs, which typically run up to $2,500 for most local moves. (Long-distance moves can be much pricier.) You’ll need some cash after the home purchase. Set some money aside for immediate home repairs, upgrades and furnishings.

   

  Check and polish your credit

  Your credit score will determine whether you qualify for a mortgage and affect the interest rate lenders will offer. Having a higher score will generally get you a lower interest rate, so take these steps to polish your credit score to buy a house:

  • Get free copies of your credit reports from each of the three credit bureaus — Experian, Equifax and TransUnion — and dispute any errors that could hurt your score.

  • Pay all your bills on time, and keep credit card balances as low as possible.

  • Keep current credit cards open. Closing a card will increase the portion of available credit you use, which can lower your score.

  • Avoid opening new credit accounts while you’re applying for mortgages. Opening new accounts could put a hard inquiry on your credit report and lower the overall average age of your credit accounts, which could hurt your score.

     

    Compare mortgage rates and fees

    Plan to shop around for mortgage lenders and compare three to five different quotes. Doing so could save you thousands of dollars in interest over the lifetime of the loan.

    The Consumer Financial Protection Bureau recommends requesting loan estimates for the same type of mortgage from multiple lenders to compare the costs, including interest rates and possible origination fees.

    Lenders may offer the opportunity to buy discount points, which are fees the borrower pays upfront to lower the interest rate. Buying points can make sense if you have the money and plan to stay in the home for a long time. Use a discount points calculator to decide.

    In a buyers market, some motivated sellers may offer to pay some or all of the buyer’s points to close the deal.

    7. Gather your loan paperwork

    Before you’re approved for a mortgage, your lender will ask you for financial records to verify your income, assets and debt, including:

    • Proof of income and employment, such as tax returns, W-2s and 1099s.

    • Statements for bank, retirement and brokerage accounts.

    • Records of debt payments, such as student loans, auto loans or any real estate debt.

    • Documentation of other events that impact your finances, such as divorce, bankruptcy or foreclosure.

    Pull these documents ahead of time to stay organized throughout the process — you’ll need them for a mortgage preapproval as well as when you apply for the loan.

    Get a preapproval letter

    A mortgage preapproval is a lender’s offer to loan you a certain amount under specific terms. Having a preapproval letter shows home sellers and real estate agents that you’re a serious buyer and can give you an edge over home shoppers who haven’t taken this step yet.

    Apply for preapproval when you’re ready to start home shopping. A lender will pull your credit and review the documents you organized in the previous step. Applying for preapproval from more than one lender to shop rates shouldn’t hurt your credit score as long as you apply for them within a limited time frame, such as 30 days.

    Negotiate with the seller

    You may be able to save money by asking the seller to pay for repairs in advance or lower the price to cover the cost of repairs you’ll have to make later. You may also ask the seller to pay some of the closing costs. But keep in mind that lenders may limit the portion of closing costs the seller can pay.

    Your negotiating power will depend on the local market. It’s tougher to drive a hard bargain when there are more buyers than homes for sale. Work with your real estate agent to understand the local market and strategize accordingly.

    Stick to your budget

    To avoid financial stress down the road, set a price range based on your budget — and then stick to it.

    A lender may offer to loan you more than what is comfortably affordable, or you may feel pressure to spend outside your comfort zone to beat another buyer’s offer in a bidding war.

    In a competitive market, consider looking at properties below your price limit to give some wiggle room for bidding. In a buyers market, you may be able to view homes a bit above your limit. Your real estate agent can suggest a range for your offering price.