1. Credit history. Run a credit report on yourself – which is free to do once a year and doesn’t affect your credit by going to annualcreditreport.com and receiving a report from each the three major credit-reporting agencies – and focus on the areas you can improve. You may have credit card balances to pay off, or a few missed student loan payments from a couple years ago. You may also simply need more time to pass from a recent borrowing mistake. The more time that passes from the last blemish on your credit report, the less likely a lender is to consider it a red flag to give you a loan.

FHA loan: Depending on property location and other, personal factors, you could qualify for a home loan from the Federal Housing Administration. In most cases, you'd be expected to make a down payment of approximately 3.5% (with a 1.75% insurance premium, and at a 4.25% interest rate). A down payment on our $300,000 model: $10,500. Together with closing costs and a buffer, savings required would be $26,916-$28,416. Notice, however, that you're paying a great deal more than in the non-FHA model when it come to the higher mortgage-insurance premiums -- some $43,485 over 103 months. Still, the FHA plan may be more manageable for some, as the initial down payment is smaller and insurance payments are spread out.
How to avoid this mistake: If making a minimal down payment is an accomplishment, the choice is simple: Don’t buy discount points. If you have enough cash on hand, the value of buying points depends on whether you plan to live in the home longer than the “break-even period.” That’s the time it takes for the upfront cost to be exceeded by the monthly savings you get from a lower interest rate.

Following a decline in homeownership after the Great Recession, homeownership rates nationwide are above 64 percent as of the first quarter of 2018, according to the U.S. Census Bureau. While homeownership has not returned to its historical peak of 69.2 percent in 2004, it is edging upward again after hitting a 50-year low in mid-2016 at 62.9 percent.

As well, with student-loan debts high (and, per a recent Federal Reserve study, a deterrent to buying a home), it may be valuable to some first-time buyers that Fannie Mae will back loans to borrowers with debt-to-income levels of as high as 50%. This can mean that first-time homebuyers whose future potential income prospects are good may be able to get home sooner.

If your available cash doesn't cover your needs, you have several options. First-time homebuyers can withdraw up to $10,000 without penalty from an Individual Retirement Account, if you have one, though you must pay taxes on the amount. You can also receive a cash gift of up to $15,000 a year from each of your parents without triggering a gift tax.


Next up on your to-do list: Apply for a pre-approval, the process in which a lender reviews your financial information—like your credit report, W2s and bank statements—and commits to giving you a mortgage for a specified interest rate. It's a good idea to consider doing this now because it can prove to a seller that you're a qualified buyer, and once an offer is made, the bank will just have to appraise the home—not the property and your finances.
Next, consider how long the home has been on the market, and how incentivized the homeowner is to sell. For example, if the seller is living in a transition home while waiting to sell, you may have a better chance of getting the seller to accept a discounted offer. But if he's casually putting the home on the market to see how much he can net, the seller may be more apt to wait for the perfect price.
Next, consider how long the home has been on the market, and how incentivized the homeowner is to sell. For example, if the seller is living in a transition home while waiting to sell, you may have a better chance of getting the seller to accept a discounted offer. But if he's casually putting the home on the market to see how much he can net, the seller may be more apt to wait for the perfect price.
Further prepare by taking advantage of a first-time homebuyer education course, often offered by local Realtors’ offices, banks or even your county at a community center. Many courses stress the importance of financial preparedness and getting ready to go through the rest of the home purchase process, and a class will help you get ready for what’s ahead.
Once you have researched the home buying process in detail, the next phase is to take actionable steps towards your goal of becoming a homeowner. The home buying process is no doubt a long and arduous process, and it is possible that you will experience some setbacks along the way. At times like these, a helpful home buying process checklist will prove to be helpful:
I was readying myself to start my move as I am aiming to work away from our home and getting a new home is something that’s on my list of priorities. Knowing that getting one’s financial ready first for us to learn whether if we have enough income to sustain ourselves once we move as you’ve mentioned is a very helpful tip. That is something I would surely keep in mind as it would ensure that I can keep on living alone and independently. Thanks for the helpful guide on how to purchase one’s first home!
How to avoid this mistake: Talk to a mortgage professional about getting pre-qualified or even pre-approved for a home loan before you start to seriously shop for a place. The pre-qualification or pre-approval process involves a review of your income and expenses, and it can make your bid more competitive because you’ll be able to show sellers that you can back up your offer. (See what a pre-approval is and why it matters.)
Pre-approval is yet another option that is available. For pre-approval a credit check is run and the amount of available down payment is taken into consideration. The lender also looks at any owed debt and even if the person is a first time home buyer. This results in an estimated pre-approved amount that is typically favored over pre-qualification.
What to do instead: Ask your real estate agent to help you track down neighborhood crime stats and school ratings. Measure the drive from the neighborhood to your job to gauge commuting time and proximity to public transportation. Visit the neighborhood at different times to get a sense of traffic, neighbor interactions and the overall vibe to see if it’s an area that appeals to you.
Once the buyer has found the perfect home, it is time to make an offer on the property. This is an area in which a real estate agent is invaluable. He or she will base the offer price off of comparable homes that have sold recently in the area. The agent will draft a contract that is agreeable to the home buyer. The contract will include the price of the offer, as well as terms that the seller and the buyer will need to meet in order to achieve a successful transaction. The agent will ensure that the contract meets all of the necessary legal requirements.
“Home loan documents” refers to the documents relating to the mortgage issued by the lender to you, the buyer. These documents include: 1) note, 2) mortgage, 3) loan application, and 3) Truth-In-Lending Disclosure (TILA). There may be other documents included. It’s always a good idea to read the documents yourself and consider having an attorney read them for you, too.
The largest metro area to make the Best Affordable Places to Live list, Houston residents spend 26.47 percent of the median blended household income on housing. The Texas metro area also sees a relatively low cost of living despite the significant number of people moving there. Houston's population grew by 6.84 percent between 2011 and 2015 due to net migration alone, according to the U.S. Census Bureau.
Before you begin the home-search process, it’s crucial to get a good idea of how much house you can afford. Financial expert and author Dave Ramsey recommends multiplying your monthly take-home pay by 25 percent to determine what your maximum mortgage payment should be. You can then use a mortgage calculator to determine the ballpark home price that will keep your monthly payment under that amount.
Homeowners insurance is a contract that protects both you and your lender in case of loss or damage to your property. The contract is known as an insurance policy, and the periodic payment is known as an insurance premium. The monthly homeowners insurance premium is often included as part of the monthly mortgage payment, with the insurance portion of the payment going into your escrow account.
Your mortgage lender will also be working on the underwriting for the loan, including an appraisal of the property to ensure the purchase price matches its value, based on other sales of similar properties in the area. If the appraiser determines the house isn’t valued at the agreed-upon sale price, you may have to come up with cash to make up the difference, or try to negotiate the price down with the seller. You'll likely have to provide updated proof of income, details on your existing debts and assets, information about your tax return and, of course, the address of the property you're buying along with the price of the house and amount you'd like to borrow.
As you’re comparing quotes, ask whether any of the lenders would allow you to buy discount points, which means you’d prepay interest up front to secure a lower interest rate on your loan. How long you plan to stay in the home and whether you have money on-hand to purchase the points are two key factors in determining whether buying points makes sense. You can use this calculator to decide whether it makes sense to buy points.
Each month, part of your monthly payment is applied to the principal balance of your loan, which reduces your obligation. The way amortization works, the principal portion of your principal and interest payment increases slightly every month. It is lowest on your first payment and highest on your last payment. On average, each $100,000 of a mortgage will reduce in balance the first year by about $500 in principal, bringing that balance at the end of your first 12 months to $99,500.
"Building equity in a home can be a good way to grow your wealth, but it's important that you do so in a way that doesn't stretch your finances too thin," he cautions. "Things can get really ugly when the housing market declines, so it may be a good idea to take out a 30-year mortgage but accelerate your monthly payments as if you had a 15-year mortgage. If you ever need to lower your payment in the future, you'll still have that option."
"Building equity in a home can be a good way to grow your wealth, but it's important that you do so in a way that doesn't stretch your finances too thin," he cautions. "Things can get really ugly when the housing market declines, so it may be a good idea to take out a 30-year mortgage but accelerate your monthly payments as if you had a 15-year mortgage. If you ever need to lower your payment in the future, you'll still have that option."
To find someone, interview several buyers' agents—this means they exclusively represent you, and not the seller, as well—until you identify someone who understands your needs and makes you feel comfortable. As a final step, check your state's real estate licensing board's website to ensure they're registered, and don't have any complaints or suspensions logged against them.
Your agent can put you in contact with Coldwell Banker Home Loans so you can be pre-approved for a mortgage even before starting the house hunting process. Although the pre-approval is not a final loan commitment, the pre-approval letter will demonstrate your financial strength and ability to go through with the purchase when you are ready to make an offer on a home.
Home inspection, a physical examination of the condition of a real estate property, is a necessary step to not only know about any problems with the property, but also get a look and feel of the surroundings. If you find a serious problem with the home during the inspection, you'll have an opportunity to back out of the deal or ask the seller to fix it or pay for you to have it fixed (as long as your purchase offer included a home-inspection contingency).
You will have to provide proof of employment and proof of income to qualify for your mortgage. This shows the lender that you are creditworthy. It’s usually not great to quit your job during the home-buying process for this reason. Some lenders may ask for employment verification later in the home-buying process, so your approval could actually change if you take a lesser paying job during the home-buying process.
When you’ve made an offer that’s within your budget, your Realtor will prepare the paperwork for you to sign and will submit it, along with your pre-approval letter and your earnest money, which is a good-faith deposit of about 1 percent of the purchase price. All this usually happens quickly, especially if other buyers are interested in the same property.
Homeowners insurance and property taxes: You’ll typically have to prepay homeowners insurance and property taxes at closing, and you should pay them on an ongoing basis as long as you own the home. The cost varies depending on your home and location. If you have an escrow account set up, these charges are rolled up into your monthly mortgage payment. But if you don’t have an escrow account, you’re in charge of paying them on your own, and you may have the choice of paying them monthly or annually.
The fact that the Raleigh and Durham metro area is relatively affordable – with residents spending just 25.85 percent of the blended annual household income on housing and utilities – contributes to the trend in businesses and residents flocking to this North Carolina hot spot. Raleigh and Durham grew by 6.42 percent between 2011 and 2015 due to net migration alone, according to the U.S. Census Bureau, making it the 10th fastest-growing metro area due to net migration out of the 100 largest in the U.S.
Fixer-uppers are all the rage these days, as many homebuyers are willing to take on renovation projects in exchange for a slightly lower price tag. But when budgeting for your renovations, leave plenty of room for the discovery of existing problems once your contractor looks behind the walls. The HomeAdvisor survey found 51 percent of homeowners spent more time on home projects than they expected. “Even if you have a fully vetted, well-reviewed contractor … they still might uncover issues that maybe a previous contractor left incomplete,” Hunter says. He recommends leaving around 10 percent extra space in your budget for surprise problems of any kind.
Having a good real estate agent on your side can help you eliminate the homes that don't meet your unique needs, and hone in on the home that does meet those needs. A savvy real estate agent knows the good homes in the good neighborhoods and communities, and can help you negotiate a better price once you've focused on a single property. A real estate agent will also be there with you when you close on the house, and can steer you away from making any last-minute mistakes, and help you cut down on often-onerous home closing costs.

When you know what you can afford, start limiting your options. Take time to learn the neighborhoods you’re considering: Research the schools and municipal services, and drive through them at various times, day and night, to determine whether you want to actually live there. Do you feel safe walking around the neighborhood? How far is it to the nearest stores and restaurants, and how much does that matter to you?
Great article, very helpful. I love how you mention getting both of the partners’ credit scores in shape and saving money for a down payment. You have to start preparing for a new home long before you actually buy one. My husband and I have been working towards it for a few years, and we are finally ready to start looking! I am so excited and nervous at the same time!
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