Owning a home of your own is part of the American Dream. But a first-time homebuyer must take diligent steps to be in a position to make what may be their single largest investment. If you're getting organized to secure a mortgage, these are essential things every first-time homebuyer needs to know.
Who Qualifies as a First-time Homebuyer?
First-time homebuyer programs can be somewhat misleading. Depending on the lender, you may qualify as a first-time homebuyer if you haven’t owned a property in several years.
That being said, getting approved for a mortgage typically requires potential buyers to possess a reasonably sound credit history, reliable income, and enough money to put down. Those who qualify as a first-time homebuyer garner perks other borrowers may not.
Benefits First-time Homebuyers Enjoy
There are plenty of incentives available to help first-time homebuyers get across the finish line. A Veteran’s Affairs (VA) mortgage does not necessarily require borrowers to have the traditional 20 percent down payment. People who served typically have the option of a zero-down first mortgage.
The Federal Housing Administration (FHA) also supports first-time mortgages with less than a 20 percent down payment. Beyond that flexibility, a first-time homebuyer gains access to tax incentives and financial education courses. Plus, lenders may be more inclined to work with less-than-perfect credit scores.
Key Steps for the First-time Homebuyer
It’s not unusual for people to get excited about purchasing a home and allow their emotions to carry the day. Yes, it’s a wonderful life experience. But staying grounded as you make this major financial decision is crucial. These are 10 steps that can serve as your GPS to successfully buy a home of your own.
1. Make Sure You're Financially and Mentally Ready
In all likelihood, you’ve run the numbers on how large a mortgage you can afford. This involves estimating household income, monthly mortgage payments, taxes, insurance, utilities, maintenance, and peripheral expenses. But are you emotionally prepared for homeownership?
Ask yourself if you're ready to take on commitments such as mowing the lawn, repainting rooms, making home improvements, and possibly cutting back on leisure spending. Being a homeowner comes with increased responsibility and lifestyle changes.
2. Save For Your Down Payment
Although there are first-time homebuyer programs that allow people to put less than 20 percent down, there may be a catch. It’s not uncommon for lenders to require private mortgage insurance (PMI). Buyers who put down less than 20 percent may incur this additional monthly cost. Cutting back on discretionary spending and hitting the 20-percent mark can save you money in the long run. A sizeable down payment also helps establish home equity.
3. Check Your Credit Score
The three major credit reporting agencies — Equifax, Experian, and TransUnion — are required to provide you with a free credit history report once every 12 months. Visit AnnualCreditReport.com to make the request. You’ll have an opportunity to review the information and ask the agencies to fix any mistakes. Resolving any issues may also help bump up your score and possibly help you qualify for a lower mortgage rate.
4. Get Pre-Approved for a Mortgage
Getting pre-approved for a mortgage is an excellent way to discover your borrowing limit without significantly impacting your credit score. The information will also allow you to explore a Fixed Mortgage versus an Adjustable Rate Mortgage (ARM).
A fixed mortgage locks in your interest rate and monthly installments for the life of the mortgage. By contrast, an ARM usually offers a lower initial interest rate that may vary annually. A first-time homebuyer may opt for an ARM to lower initial costs and refinance later if rates tick up. If they dip, an ARM could result in homeowners paying lower monthly installments.
5. Find a Real Estate Agent
With your financial and emotional ducks in a row, connect with a reputable real estate agent. Having a professional to look after your best interests can help avoid some of the pitfalls a first-time homebuyer may experience. If your agent is aware of your likes, dislikes, and financial situation, they'll be better equipped to find options that fit your specific needs. Make sure you work with an agent who understands that first-time homebuyers may understandably need more guidance than someone who has gone through the process before. The one caveat is to never rely on an agent who is also representing the seller. They are obligated to further their client’s interests first and foremost.
6. Start Shopping Around
Searching for a home has never been easier. You can run searches on platforms such as Realtor.com and Zillow, using filters to create a list in your price range, home parameters, and locations. Consider narrowing the list to a few homes that stand out and contact the real estate agent to schedule a walk-thru. Your agent will be a great resource during this time since they'll be more familiar with certain neighborhoods as well as builders. Tap into their expertise and insight as you hunt for your first home.
7. Make An Offer
Once you find your dream home, work with your real estate agent to make a reasonable offer. The housing market has been hot in recent years and sellers are fielding offers close to their asking price. Making a fair offer can be complicated. Don’t hesitate to ask experienced professionals for advice. Depending on the market conditions, you may have to offer a purchase price that is over the initial asking price of the home. When you're determining your budget, this is a key factor that you should also consider. The last thing any home buyer wants to experience is the disappointment of losing multiple homes as the result of being outbid.
8. Get a Home Inspection and Home Appraisal
During the home inspection, you may learn the house and property have certain imperfections. Cosmetic issues are to be expected to some extent. But structural problems or pest infestations are good reasons to request the seller fix the issues or renegotiate the deal.
The home appraisal will determine whether your mortgage gets approved. Lenders generally don't approve home loans for more than a property’s value. If you still feel strongly about purchasing the home, increasing the down payment may be an option.
9. Shop Around for Homeowner's Insurance
Conduct due diligence when purchasing homeowner's insurance. Policies are a mortgage requirement and can differ significantly in cost and coverage. One of the items to consider when purchasing insurance is total loss coverage. It’s essential the policy will pay for a total rebuild at today’s prices and not just cover the value of the home.
10. Close On Your Home
You'll likely enjoy a final walkthrough before meeting with the various parties to sign off on the legal documents. A real estate lawyer and your agent should be present in case you have any questions. Once everything is signed and notarized, you'll officially be a homeowner!
Turn Your Home-Owning Dreams into Reality with Peach State
With all the excitement that comes with owning your own home, there are a lot of questions that also arise. If you’re ready to begin the process of buying your first home, reach out to Peach State’s Mortgage Services Department! Call 770.580.6098 to learn more.
For more tips on buying your first home, download our "How Much House Can I Afford in Georgia or South Carolina?" guide.
