For most of us, buying a home is as much a symbol of the American dream as it is the most significant financial investment of our lives. It’s an incredibly big deal and a nerve-wracking experience, because real estate transactions are some of the most complex on the planet.
If you’re a first-time homebuyer, you’re probably going to find the process daunting and fraught with uncertainty. Not only is it probably the biggest purchase of your life, but the process is complicated and fraught with unfamiliar lingo and surprise expenses as well.
Because of this, it should go without saying that you need an experienced buyer’s agent. Before we go any further, though, it’s important to underscore the fact that a good agent is absolutely indispensable to you as a buyer.
Hiring an agent should be your first order of business, mostly because they’ll save you a lot of time and confusion. An agent can send you listings directly from MLS that fit your parameters, and they usually know of new listings coming up that are not yet on the market. An agent can generally spot overpriced listings and advise you accordingly, and they’ll know when you need to walk away or look elsewhere.
When it comes down to the complex legalese and real estate jargon that comes with the sale of property, you’ll be leaning on your agent to interpret it and steer you through it while making sure you understand what’s happening every step of the way.
Next, make sure you’re in a financial position to come up with a reasonable down payment, and make sure your credit score is reasonably good – both of these can save you thousands over the course of a mortgage term. It’s common to put 20% down, but many lenders now permit much less, and first-time home buyer programs allow as little as 3% down.
If you can only afford a 3% down payment, understand that you’ll wind up paying for much more than the home’s asking price over the years, and you’ll probably incur extra costs like interest points and private mortgage insurance (which is fairly common for down payments under 5%). You might try saving up for a down payment by setting aside tax refunds and work bonuses, setting up an automatic savings plan, and using an app to track your progress.
Even if you can offer a 20% down payment, a lender will still treat you as a high-risk borrower if you have a poor credit score, and this again can cost you thousands over the long run. When you’re taking out a mortgage loan, your credit will be one of the key factors in whether you’re approved, and it will help determine your interest rate and possibly the loan terms. So check your credit before you begin the home buying process. Dispute any errors that could be dragging down your credit score and look for opportunities to improve your credit, such as making a dent in any outstanding debts.
As you shop around for loans, don’t open any new lines of credit. Not only do hard inquiries affect your score, lenders don’t necessarily like to see new applications on the reports of potential borrowers. It’s not a good look, so don’t apply for that Kohl’s credit card just because the cashier promises you 10% off your purchase that day.
Finally, when you know how much house you can afford, and your finances are in order, go ahead and get preapproved for loan. Most people get prequalified, which is just an estimate of how much a lender may be willing to lend based on an applicant’s income and debts.
As you get closer to buying a home, it’s wise to get a preapproval, where the lender thoroughly examines your finances and confirms in writing how much it’s willing to lend you and at what terms. Having a preapproval letter in hand makes you look much more serious to a seller and can give you an upper hand over buyers who haven’t taken this step.
Are you looking to buy your first home, or do you have questions? Contact me here for your Florida real estate needs!
Matt Guarro is a Realtor based in New Smyrna Beach, Florida