Buying a home is an investment in your future, but only if you avoid a few mistakes that many first-time homebuyers make. Before jumping into home ownership, ensure that you’re prepared by taking the following considerations into account when purchasing a new home.
1. Understand the Importance of a High Credit Score
A credit score of 620 is typically the minimum score to qualify for most home loans. Before you start shopping for homes or sit down with a lender, check your score and learn how you can improve it. I recommend using Credit Sesame. Not only is it free, but it will also give you all the information you need.
If you’re looking to save money by getting lower interest rates on your home, you’ll want to score between 680 and 720. Meanwhile, scoring above 720 can shed thousands off your total payment. Buying a home is a huge investment, and it may be worth waiting the time it takes to improve your credit score just enough to get a better interest rate.
2. Get Pre-Qualified Before You Start Shopping for Homes
The ease of access to home listings online makes it tempting to start shopping right away, but many first-time homebuyers start the process too early. You want to meet with a lender and get pre-qualified for a home loan before you start shopping. This way, you’ll know your price range so you won’t waste time looking at houses that you may not be able to afford.
3. Work with a Buyer’s Broker
While the internet makes it possible to get in touch with sellers and do a lot of the work on your own, there’s no replacement for an experienced broker or agent. They act as the intermediary between you and the seller, and their knowledge of the market and ability to negotiate can help you avoid regrettable blunders.
Also Read: What Credit Score Is Needed To Buy a House?
4. Protect Yourself from Identity Theft
Buying a home can expose you to the threat of identity theft. Many credit check websites, mortgage companies, and even real estate agencies have information-sharing practices that pose the risk of exposing your data to identity thieves. With cybercrooks looking to prey on unwitting homebuyers, it’s critical to protect your identity from cybertheft.
5. Buy Within Your Means
When considering prices, make sure you’re budgeting beyond the cost of the home. Budget for transportation, home improvements, and other expenses. Don’t spend at your max, because you want to allow wiggle room for possible loss of income or unexpected expenses. Create your own budget regardless of what loan you’ve been approved for, and try not to spend at the upper limit of your budget.
6. Choose the Right Mortgage Product for Your Specific Needs
Assess your needs and determine your goals for owning a home when considering mortgage products. Many first-time homebuyers go for a 30-year mortgage plan because the monthly payments are smaller. However, the interest rate is usually higher than the interest rate of a 15-year mortgage. Besides saving money on high-interest rates, shorter loan periods also help you gain more home equity, sooner.
If you’re likely to relocate within a few years, a 30- or 15-year fixed loan may not make sense. You could get lower interest rates for the period you own the home by getting a 5-1 ARM (adjustable-rate mortgage) or a 7-1 ARM. These mortgage products give you five or seven years of lower fixed interest rates, which then increase after the initial period.
7. Build Home Equity
Home equity is the amount of the home you actually own. In order for your home to be a true asset and a valuable investment, your equity should be a significant chunk of your net worth. Setting up a shorter-term mortgage plan or paying off more than you owe each month can help you build equity faster and get more out of your home.
Moving Ahead with Confidence
Evading heart-breaking mistakes as a first-time homebuyer is as simple as taking some prerequisite steps and quelling the temptation to rush into things. The goal is not just to buy a home, but to buy a home that serves as an asset without putting you at financial risk. Investing in a broker or agent, taking the time to improve your credit score and protecting your identity are worthwhile practices you should consider to prevent unwanted snags in the process.
