Investing in Your Future: A Guide for First-Time Home Buyers
Becoming a homeowner for the first time is one of the most momentous stages in your life. It’s a huge achievement and certainly one to be proud of. While it comes with a great deal of excitement, buying your first home can be incredibly overwhelming. Between choosing mortgage options, applying for loans, and planning to make a down payment, your head could feel a little rattled. It doesn’t have to be as stressful as it seems. Patience and planning can go a long way in the stages leading up to purchasing your first home. Consider the tips below before taking your first steps.
Plan Ahead To Avoid Mistakes in the Home Buying Process
Determine how much you can afford
Comparing your income with how much you can afford to pay monthly on a mortgage is the first step if you’re ready to buy a home. Consider other monthly financial commitments you may have, such as car payments and student loans. Once you know your monthly budget, you’re one step closer to determining how much you can comfortably spend on a house.
Consider your credit score
Keeping a favorable credit score helps you to qualify for lower interest rates. Before buying your first home, review your credit reports to check for potential errors. It’s helpful to work on improving your credit score so you don’t get stuck paying high interest rates and spending more of your hard-earned money over time.
Explore your down payment options
Paying for a house in full is not always an option for first-time home buyers. While some programs allow you to put a down payment as low as 3%, you should try to put more down if possible. In fact, 11% of homeowners under the age of 35 expressed regret in not waiting to make a bigger down payment, according to a survey from NerdWallet. Paying 20% or more gets you out of paying for private mortgage insurance (PMI), which protects the mortgage company in case you can’t make your payments and end up in foreclosure. PMI usually costs 1% of the total loan value and is added to your monthly payments. It doesn’t seem like a high cost month-to-month, but consider how much you could be saving long-term if you put that money toward paying off your principal balance instead.
Spend time shopping for mortgage options
There are a variety of options available to prospective home buyers when applying for a mortgage to help you qualify for a home. Consider options that fit your needs and come with a doable payment plan month-to-month.
One good choice is to take out a Fixed Rate Mortgage, which is a loan in which the interest rate does not change during the entire term of the loan. This means the amount paid monthly won’t change (unless taxes and insurance are included in escrow) making it easy for homeowners to budget during the span of their mortgage payments.
Another option is an Adjustable Rate Mortgage where the loan interest rate changes periodically, corresponding with fluctuations in an index. These loans often come with a substantially lower monthly cost than a fixed rate mortgage, at least for the first few years. While the interest rate on adjustable loans starts fairly low, they can rise to above-market value over time. This may be a good option if you plan to make a down payment of more than 20% and are able to pay off your house within 5 to 10 years.
Ready To Buy Your Dream Home?
At Lanco Federal Credit Union, we want you to succeed financially in the home you’ve dreamed of. We provide our members with access to a variety of mortgage options and expert knowledge through our trusted partnership with State Financial Network.