Homeward Bound: A Millennial’s Guide to a First-Time Mortgage
Buying a home is just as exciting as it is daunting, but that doesn’t mean it has to be a stressful burden! Patience, planning, and perseverance are sure to have you settled in, safe and sound for years to come. Follow these helpful tips to avoid any snags along the way:
Saving for a Down Payment
The only time you should move forward with a down payment is when you want to be a home-owner. Don’t give into any outside pressure from your friends or family; home-owning is a considerable financial commitment and should never be an impulse decision. Plan ahead! Saving for a down payment will take careful planning over time but is worth the wait. Most importantly, you’ll need a stable income, one that will enable you to set aside a considerable funds without causing you financial strain.
When you’re ready to commit to a down payment, more is better. It’s common for people to put down 15-20 percent, though some lenders will allow smaller amounts. Larger down payments mean you’ll be paying less interest over time, which will remove some of the financial burden and will give you flexibility if money is tight down the road. If you need some extra assistance in determining how much to save, use a home affordability calculator.
It’s also important to make sure you have a solid credit score. Credit scores affect what lenders are willing to give you, including your monthly payments, interest rates, and the duration of your loan. Before you begin your search, check your credit score. A good credit score is between 700 and 749, and an excellent score is 750 and above. The higher the score the better, so if your numbers are on the low end, give yourself the time to build them back up. Don’t make any large purchases or take out any new loans, and always pay off any outstanding debts on time.
Once you’ve set yourself up with a comfortable down payment and credit score, look into getting preapproved for a loan. First, you can get pre-qualified. Pre-qualification is dependent on your income and outstanding debts. It also gives you an estimate of how much a lender will be willing to loan you if you were to apply. Preapproval, however, is extremely helpful to both you and the seller. During preapproval, a lender will do an extensive workup of your finances, culminating in a written statement of how much they are willing to give you, under what conditions. This documentation makes you look serious to the seller you’re hoping to purchase from, giving you a leg up when you put a bid on a house.
Interest Rates & Additional Fees
Be acutely aware of interest rates and any additional fees. The amount you put down initially will affect your annual mortgage rate, and it’s important to consider that interest rates generally rise over time. As such, you’ll want to opt for shorter loan periods if at all possible. Lenders will offer you a 15, 20, or 30 year fixed rate depending on your finances, though those that are shorter will ultimately allow you to save more over time. This is why saving for a down payment and establishing good credit are so critical; they give you the ability to pay off your mortgage quickly, and with less financial strain. Additionally, don’t forget to consider homeowners association fees, closing costs, and moving expenses in your budget.
Finding the Right Realtor
Now, you’re ready to start your search! For this, you’ll need a well-respected, experienced realtor you can trust. Your realtor should be someone you can get along with for an extended period of time, who is knowledgeable about the area and specializes in sales in your income bracket.
Choose the right neighborhood! Researching the area you’d be moving into is important, and you should take your time. Check out walk, bike, transit scores—these numbers reflect the accessibility of the area through various modes of transportation, and indicate how close you’ll be to hospitals, pharmacies, grocery stores, restaurants, bars, public works, entertainment, and more.
Even if you don’t have kids, look into area schools, as they generally affect the value of your home. Similarly, investigate crime and safety statistics, as well as traffic and noise conditions. At the end of the day, the house you buy will be your home for years to come, and you’ll want to feel safe and comfortable both in and out of doors. Remember, you’re not just buying a home for today, you’re also buying a home for tomorrow, so your future plans should always be a factor in your choice.
Article written by Haley Kieser