What Every First-Time Home Buyer Should Know

First Service Credit Union
6/1/2018 12:00:00 AM - 4 min. read

There are so many decisions to weigh when it comes to buying your first home. What neighborhood should I buy in? How much house can I afford? Can I even afford to buy a home? These are questions all first-time, Texas home buyers ponder. And we have answers to guide you through the process with ease.

Am I ready to buy a home?

  • Set a budget
    To determine if you’re financially ready, review your income and expenses and decide how much you can afford to pay on a home each month. Your mortgage payment should be no more than 28 percent of your gross income. Also include gas, electricity, and water bills, annual home owner’s association dues, and home maintenance expenses and repairs in your budget.

 

  • Review your credit
    Now’s an appropriate time to check your credit score. It affects your interest rate and the total amount you can borrow — two factors that help determine your monthly home loan payment. Get your free credit report from AnnualCreditReport.com and check for any errors, unresolved issues, or unpaid debts. Report any mistakes to the credit bureau and pay off any debts to improve your credit score.

 

  • Weigh the responsibility
    As a renter, your landlord is responsible for repairs, maintenance, and upkeep. As a home owner, these will be your responsibility. Consider the time and costs involved. Also, make sure your career is stable and you plan to stay in the city where you’re purchasing for some time. Read this “To Rent or To Buy” article to fully weigh the two options.

 

Do I need a down payment?

Having a down payment will lower the amount you borrow, which will lower your monthly mortgage payment. An ideal down payment is at least 20 percent of the cost of the home, as it will allow you to avoid having to pay private mortgage insurance (PMI). If you can’t afford to put 20 percent down, there are down payment assistance programs, and Federal Housing Administration (FHA) and Veterans Affairs (VA) loans for borrowers with limited savings.

 

How much home can I afford?

Use a mortgage calculator to see how much home you can afford. This will allow you to house hunt with confidence.

 

Should I get pre-qualified for a loan?

Yes. Get pre-qualified with your lender to show potential sellers that you’re serious and able to make an offer. It confirms you’ve submitted an application with proof of income, assets, employment verification, and a credit check. A pre-qualification letter will give you the approximate mortgage loan amount and purchase price range for which you qualify.

Once you’re pre-qualified, don’t make major purchases or apply for new credit, to keep your pre-qualification in good standing.

 

How do I shop for a home?

A professional real estate agent will help guide you to the homes that fit your budget and preferences. Consider the neighborhood where you want to live based on the area’s activities, shopping, safety, schools, and proximity to work, friends, and family. When it comes to the home, also consider your future needs. For example, if you’re planning to start a family and get a dog one day, you may need extra square footage and a big yard.

 

How do I make an offer?

Once you’ve found your dream home, your real estate agent will submit an offer in writing. He or she will advise you on what price to offer, based on the home’s value and comparable houses, help negotiate the closing costs, earnest money, and other factors. Once you and the seller agree on the terms, you’ll sign your purchase contract and submit your earnest money, which shows you’re committed to buying the home and will become part of your down payment.

 

What do I need for the loan application?

After your offer has been accepted, you’ll start your official loan application, which many lenders now offer online. The process is not difficult, but it does take time. A loan officer can guide you along the way, if necessary. Be prepared to provide the following:

  • Pay stubs
  • Bank statements
  • Tax returns

While your application is being processed, don’t open new lines of credit or change jobs.

 

What happens at closing?

Once your offer has been accepted by the seller, you should have your home inspected and look for home insurance to prepare for closing.

At closing, you will finalize the deal by signing the paperwork and paying any necessary fees to make you the owner of the home. Fees could include closing costs and your down payment. Your loan officer will let you know how much you will need to pay and what you will need to bring. Once you’ve signed all the paperwork, you’ll receive the keys to your new home. Congratulations, you’re now a home owner.