10 must-do’s for the first-time homebuyer
If you’ve had it with rentals and roommates and think it’s time to take advantage of low mortgage rates and become a first-time homebuyer, follow this simple step-by-step plan.
1. Find out how much homes near you are selling for
Search a multiple listing service, or MLS, for homes in your area at a number of websites, including the National Association of Realtors.
Use Bankrate’s mortgage calculator to get an idea of what your monthly mortgage payments would be if you bought today.
2. Determine what monthly housing costs would be
Include taxes and home insurance in your cost. In some areas, those two costs can almost double your mortgage payment.
To get an idea of what insurance will cost, pick a property in the area where you want to live and make a call to an insurance agent for an estimate. You won’t be obligated to buy the policy, but you’ll have a good idea of what you would pay. To estimate your taxes, check your property appraiser’s website.
Just remember that exemptions and the intricacies of local tax law can create differences between current tax bills what a new homeowner could expect to pay.
3. Find out how much your closing costs will be
The upfront cost of settling on your home shouldn’t be overlooked. Closing costs include the lender’s origination fees, title and settlement fees, taxes and prepaid items such as homeowners insurance or homeowners association fees.
4. Look at your budget: Is there room for a house?
Fannie Mae recommends that buyers spend no more than 28 percent of their income on housing. Push past 30 percent and you risk becoming house-poor.
5. Talk to Realtors about your local realty market
Do they believe prices will continue falling? Or do they think your area has hit bottom or will rise soon?
6. Look at the big picture
Buying a house is a great way to build wealth, but maintaining your investment can be labor-intensive and expensive. When unexpected costs for new appliances, roof repairs and plumbing problems crop up, there’s no landlord to turn to, and these expenses can drain your bank account.
If the numbers make sense for you, making these next steps at the very beginning of the purchase process can save you time, money and aggravation.
7. Examine your credit
Blemished credit or the inability to make a substantial down payment can quash your homeownership plans. That’s why it pays to look at your creditworthiness before you start the homebuying process.
Get your free annual credit report from each of the three major credit-reporting bureaus and examine them for errors and unresolved issues. If you find mistakes, contact the credit-reporting bureau to make sure they are corrected.
It’s also a good idea to get your credit score. Get your credit report and score today for free at myBankrate.
8. Get your docs in a row
Collect pay stubs, bank account statements, W-2s, tax returns for the past two years, statements from current loans and credit lines, and names and addresses of your landlords for the past two years.
Having all of that paperwork ready for the lender saves time.
9. Find lenders and get preapproved for a mortgage
Getting preapproved for a mortgage helps you bargain from a position of strength when you are house hunting. The institution where you bank and a local credit union are good places to start your search.
Applying with multiple lenders in the same month increases your chances of getting a loan approved at the best rate possible without dinging your credit score too much.
10. If you can’t get a loan, try the government
If you can’t find a bank willing to lend to you, consider getting an FHA loan. The Federal Housing Administration has a program that insures the mortgages of many first-time homebuyers. As a result of this guarantee, lenders who might otherwise feel uneasy about your qualifications will be more inclined to lend to you. As a bonus, the FHA requires a down payment of only 3.5 percent from first-time homebuyers.