Top Tips to Help You Purchase Your First Home

Buying a home is a major milestone that many Americans dream about. However, many individuals aren’t sure what goes into making this purchase, so they aren’t sure how to prepare to take on a monthly mortgage payment.

When you’re planning to buy a home, learning about purchasing your home and how your credit score influences your mortgage rates is crucial. The more familiar you are with this information, the better you can prepare for your big purchase.

Your credit score can have a large impact on getting the economic means for a home, but it is still possible to qualify for a mortgage with a poor credit score. Furthermore, many federal assistance programs can help home-buyers get approved for a mortgage. These programs can offer many benefits such as lower interest rates while having a poor credit score. Make sure you understand your options before you take out a loan.

How to Purchase a Home 101

Buying a home is time-consuming, so make sure you understand the process before you make your purchase. Here are some tips for you to keep in mind before you go to the bank for your mortgage.

Home-Buying Tips

  1. Figure out what you can afford. It’s important that you know how much house you can afford before you go shopping for mortgages. This means you’ll need to take a look at your household’s annual income, your monthly expenses and how much debt you currently have. If you aren’t sure how much you can afford, speak to a financial advisor.
  2. Get your mortgage pre-approved. You must meet with a lender when you decide to browse for home options. Mortgage bankers within the neighborhood can be possible lenders for you. In order to get pre-approved for a mortgage, you will have to fill out an application and give the lender documents related to your finances. The lender will run a credit check to decide whether you are eligible for a loan through their institution.
  3. Speak with a real estate agent. A real estate agent can help simplify the home-buying process. They can help you find properties, and they can negotiate how much money you’ll be expected to pay for a house. Their job is to assist you with obtaining the right home for you and that the selling process goes by with ease. Furthermore, keep in mind that once you have bought your new home, the seller of the home pays the real estate agent.
  4. Make an offer on the right home for you.  It is important to take your time when looking for a home. A home is a lifetime investment and the search for one should be done carefully. When you have decided on a home that you want to buy, the real estate agent can help with making an offer.
  5. Closing the deal. A closing date will be established when you buy a home. At the time of the closing date, every party involved with buying and selling the home with fill out additional paperwork to change the home-ownership. It will be after the closing date when the banker will take a couple of days to fund the loan and pay the seller of the home. After this part of the process, you will be able to move into your home.

Learn About Government Grants for First-Time Homeowners

There are many government programs that offer financial grants and provide better terms on loans for first-time buyers. enrolling in one of these programs, you can reduce the overall amount you need to spend when you purchase a home.

For instance, Federal Housing Administration FHA loans are a popular choice among first-time homebuyers, and can be especially beneficial to those with a low credit score. The FHA does not provide direct loans to individuals. However, it does coordinate with approved lenders to offer loans to qualified applicants.

Furthermore, the FHA will guarantee your loan in order to reduce the amount of risk the lender must undertake when giving you a loan. In turn, this will allow the lender to minimize the eligibility requirements you must meet to receive the loan.

FHA loans also usually come with better terms for the borrower, and they usually require the borrower to put down a smaller down payment in order to take out the loan.

USDA loans also provide advantages as well. So long as you meet the area requirement of the home when purchasing, you may reap the benefits that come from these U.S. Department of Agriculture (USDA) loans.

Compared to the FHA loan, the USDA loan requires you to have a high credit score. However, the gap of the credit minimum between them is small.

If you or your spouse is a veteran, you might be eligible for a VA home loan. This loan is partially insured by the Department of Veterans Affairs (VA). Through an approved lender, you can purchase the loan. Often, you won’t have to put down a down payment when you take out the loan.

Other VA loan benefits include minimal closing costs and the removal of penalty fees for paying off the home loan early.

How Your Credit Score Affects Your Mortgage

It is crucial to check your credit score prior to applying for a mortgage. If your credit score is too low, you may want to begin finding ways to improve it. By increasing your credit score, you might be able to improve your chances for getting approved for a loan.

Credit scores are typically classified as follows:

  • Great credit – 720 to 850
  • Good credit – 690 to 719
  • Fair credit – 630 to 689
  • Bad credit – 300 to 629

Furthermore, you can usually have better terms for your loan when your credit is better. You also usually have less room to negotiate the terms of your loan when your credit score is less than perfect.

If you want a government-insured loan, you’ll also need to make sure your credit score is good enough. However, the minimum credit score you need for these loans are usually less than what you’d need for another type of loan.

Different banks usually make it easy for you to check your credit score. You can also check your credit score by contacting the three major credit bureaus.

How to Check Your Credit Score

About Mortgage Loan Interest Rates

Most Americans acquire a mortgage loan because they cannot pay the full price of a home. Mortgage loans have lower interest rates compared to standard loans and have a set period in which the loan must be paid. The usual time period is 30 years.

Additionally, you want to make sure if your loan has a fixed or adjustable interest rate. Fixed-rate loans let you pay the same interest throughout the time period of the loan. Adjustable-rate loans have a fluctuating interest rate. Decide which one you want before you go to apply for a loan.