Buying a house can be a very scary step. There is a lot on the line in terms of becoming a new homeowner. For example: Do you have enough saved? Are you prepared for the costs? Do you know where to begin? What is your credit score? Will your investment pay off in the end?
Regardless of the questions, buying a home comes with many pros and cons.
I have bought a few homes, helped others buy homes, and have lived in various parts of the world. Over the years, I have gathered new homebuyer tips that have saved me a LOT of money. I am sharing these tips & tricks to make your home buying process as stress-free as possible!
If you are in the “I’m thinking about buying a house, but I am not sure if I am ready” phase, then this post is for you! If you are already a new homeowner, then check out our tips for New Homeowner Success!
Generally speaking, each lender has its own credit score requirement. There may also be different credit score requirements for each type of loan that you look at.
However, Business Insider states, “For conventional loans, you’ll need a credit score of at least 620. But with FHA, VA, or USDA loans, you may be able to qualify with a lower score.”
While it might not be possible, it is best to have a credit score of over 750. With a strong credit score, you will be able to qualify for low interest rates which will save you a lot of money in the long run.
New homeowner should be well-informed about their credit health before buying a home. You can view your credit score once a year for free at Annual Credit Report, which is the ONLY source of free credit reports authorized by Federal Law.
If your credit score is in a healthy range (620-750) then congratulations– you should be very proud of yourself! It is likely that you will be approved for a mortgage by a lender. If your credit score is higher, then you will be looking at the best rates!
Many people wait to meet with a lender to determine their budget. However, a home affordability calculator can give you an estimate of what you might be able to afford.
RedFin has an excellent and modest Home Affordability Calculator that allows you to estimate your budget range!
Our research indicates that borrowers could save an average of $1,500 over the life of the loan by getting one additional rate quote and an average of about $3,000 for five quotes.
In other words, before picking a mortgage lender, get at least five different options! After you get multiple quotes, pick the lowest interest rate you can find and finalize the deal. Don’t know where to start as a new homeowner?
When you have five quotes on hand (or more), pick a rate that works best for you and move to the next step!
It is now time to meet with your lender. Before you let your lender know that you have selected them, make sure you ask some questions first.
For example, you should ask your lender how long it takes to complete the pre-approval, appraisal and closing phase of the home buying process. You might also want to know what the lender fees and closing costs are, and if there are any down-payment requirements.
You should also have a copy of your credit score and the interest rate you were quoted on-hand.
Many times you will notice that a lender changes their interest rate based on your credit score or a fluctuating market. Therefore, it is important that you come prepared with other options and housing information to get as competitive of a deal as possible.
A pre-approval is a document given by a mortgage lender that tells you the amount your mortgage company is willing to loan to you.
By having a pre-approval, you will know how much you can afford to spend on a home. Once you have finalized your mortgage lender, you will begin the process to get pre-approved.
To get a pre-approval, your lender will ask for documentation on your assets, credit score, employer income and verification, along with other documents to ensure that you are a qualified applicant.
Some home buyers may choose to get a “pre-qualification” from a mortgage company before getting a pre-approval. A pre-qualification is an estimate of how much a lender might loan out, whereas a pre-approval gives you an exact amount. The more stability and credibility you have during the home-buying process, the better.
There are many new home buyer tips, but I would put getting a pre-approval before attending open houses/searching for houses, at the top of my list!
Please make sure that you get a real estate agent that you can trust.
Your real estate agent will be responsible for finding your future home, so make sure that you both have a shared vision. A trustworthy and knowledgeable real estate agent should be able to get you the best house at the best prices.
Many mortgage lenders have connections or have worked with specific real estate agents in the past. You can ask your mortgage lender to recommend a real estate agent, or you can ask your friends and family if they have any recommendations.
You might be tempted to pick a real estate agent that is a friend or someone you are close to.
However, it is more important to make sure that whoever you get is professional, qualified, and has the best access to listings in your area.
Now that you have a mortgage lender and a real estate agent, you can start looking at houses! Zillow and Redfin are great places to look for listings, but you should also ask your real estate agent if there is a site that they recommend.
Depending on your budget you might be able to get a home that you love or you might be looking for a home that is more of a “fixer upper.”
Some new homeowner tips for the “search phase” includes looking at:
Many things in a home can be changed or improved, but location and home expansion are either impossible to change or very expensive. Therefore, make sure you go into the house search with an open mind and look for potential.
Your real estate agent should schedule you for open houses, private showings, and can give you the best advice on price, home updates, and the best offer to make.
When buying a home you should always try to make a competitive offer. Knowing just how competitive you should be, depends on if you are in a seller’s market or a buyer’s market.
A buyer’s market is when there are more houses for sale than there are buyers. Whereas, a seller’s market is when there are less homes for sale but a lot of buyers.
Ideally, you want to look for a home in a buyer’s market as you are more likely to get the best deal. However, I have bought homes in buyer’s markets and sellers markets, and have still been able to beat out other buyers by making a competitive offer.
A competitive offer is one that limits fees and contingencies, offers close to listing price or higher, and has a quick turnaround/closing.
Make sure that you are not too picky during the offer phase. If you really liked the home that you explored, then let your real estate agent know that you are highly interested. Earnest money also helps make your offer more attractive as it shows that you are a “serious buyer.”
Other ways to have a competitive offer is by offering cash, and– while not recommended– sometimes foregoing the right to change your offer after an inspection is liked by sellers. The more competitive your offer is, the less likely you will go into a bidding war.
If you are looking at multiple houses, then make sure you save your most competitive offers for the house that you like the most.
After buying a home, your first mortgage payment will be due on the first day of the second month.
However, a tip for new home buyers is to save that first month of no mortgage in a rainy day fund. Renovations, home designing, and fixing problems that occur in a home can be very costly. It is important not to rush and do everything in a new home all at once. It is a good idea to save as much money as you possibly can.
Rule of thumb is to have at least three months of mortgage payments in a savings account for emergencies. You will be lured in by many advertisements and gorgeous decor as you try to turn your new house into a home. However, please remember that your house is an investment that you will live in for quite some time.
Not every home project needs to be completed in one day or even in a month. Depending on your intent, you will have plenty of time to design your house to your liking. It is better to save money and know that you have the means to keep the investment you just made!
For my first house, I rushed on a farmhouse kitchen renovation. Then, a week later, a crazy storm caused a leak in my roof and damaged my backyard fence. Looking back, I should have fixed the urgent problems in my home before renovating my kitchen. While I made an amateur mistake, I was able to make it out of my financial hurdle. But, for many new homeowners, a financial mistake can mean losing your house!
So, please remember: A home is a liability, and reducing your risk-factor is greatly advised.
After your offer has been accepted, you are now able to get an appraisal on your house.
You will also want to schedule your home inspection, purchase new homeowner insurance for the date of your closing, and work with your loan agents to make sure you have all the documents needed for a smooth closing.
There will be a lot of documents that you will need to sign and submit. Taking the time to compile everything that is required of you in a timely manner is essential for closing on time.
Therefore– the last of my new homeowner tips is to organize and prioritize your documents so that you don’t miss any deadlines.
I hope that with these suggestions, your home buying experience goes as smoothly as possible!
Extra Tips: Do not make any big purchases before the closing date.
You might be tempted to open up a credit card at Home Depot. Or, you may want to schedule a renovation for the week of your move-in. Perhaps, the house you are hoping to buy has a large yard. So, you decide to buy a nice tractor early, to celebrate your big investment.
However, your big splurge or “pre-planning”, might actually cause you to lose your mortgage lender.
Your mortgage lender may consider your big purchase/credit card/loan to have a negative affect on your credit score and debt to income ratio, and may refuse to lend to you. Therefore, if you have any big purchases in mind, please save them for after the closing date.
Once you have signed the closing documents and have house keys in hand, then you can celebrate! Now, you will have the freedom and liberty to enjoy your house as you like.
Congrats on becoming a new homeowner! Set your new home up for success by checking out our comprehensive guide of the best new homeowner essentials!