First-Time Homebuyers Guide
A first-time homebuyer is typically defined as someone who has never owned a home before or has not owned a home within a certain recent period, often three years. This designation is important because many local, state, and federal programs offer special incentives and benefits to encourage homeownership among this group.
Purchasing a home for the first time can seem like an overwhelming venture, full of intricate processes and jargon. But with the right preparation and information, you can make this experience much easier!. Here’s our guide to help you navigate the journey.
Financial Preparation
Budgeting: Your home should be an investment, not a burden. Prior to looking at properties:
- Analyze your monthly income and expenditures.
- Determine what you can realistically afford to spend on a mortgage. Using a mortgage calculator can help you get a better idea.
- Factor in property taxes, homeowner’s insurance, and potential homeowner association fees.
Credit Scores: This three-digit number can greatly influence your mortgage interest rate.
- Higher scores generally secure better rates.
- Regularly check your credit report for errors.
- Clear outstanding debts and avoid opening new credit accounts during the homebuying process.
Down Payments: This is an upfront payment of the home’s purchase price.
- Typically, a down payment is around 20%.
- Some loans may allow less, especially for first-time buyers. However, smaller down payments might mean higher monthly payments and possibly private mortgage insurance.
Debt-to-Income Ratio: This is calculated by dividing monthly debt payments by monthly gross income.
- Generally, your housing costs should be around 28% of your monthly gross income.
- Mortgage Lenders usually look for a Debt-to-Income ratio of less than 43%. Some may go higher, but the interest rate may also be higher.
Closing Costs: These are additional charges to finalize the mortgage.
- These can include loan origination fees, appraisal fees, title searches, and more.
- Usually, they range between 2-5% of the loan amount.
Understanding the Mortgage Application Process
Pre-approval: Before house hunting:
- Consult with a mortgage lender to get pre-approved. This will give you a clear picture of what you can afford.
- It shows sellers you are a serious buyer.
Mortgage Types: Familiarize yourself with different mortgage types.
- Fixed-rate mortgage: The interest rate remains constant throughout the loan term.
- Adjustable-rate mortgage: The interest rate can change after an initial period.
- Government-insured loans: For eligible individuals, options like FHA, VA, or USDA loans might be available.
Submitting the Application: You’ll need to provide various documents, including proof of income, credit history, personal assets, and the home’s details.
Finding the Right Home
List Down Your Priorities:
- Distinguish between ‘needs’ (like the number of bedrooms or proximity to work) and ‘wants’ (like a swimming pool).
- Consider factors like location, neighborhood safety, schools, transportation, amenities, and future growth potential.
Hiring a Real Estate Agent:
- An experienced agent can offer insights into the housing market, negotiate deals, and streamline the buying process.
House Visits:
- Schedule visits to potential homes.
- Observe the surroundings, check the home’s condition, and visualize your life there.
Making an Offer and Closing the Deal
Placing an Offer:
- With your agent’s guidance, decide on a competitive offer.
- Be prepared to negotiate, as sellers may counteroffer.
Home Inspection and Appraisal:
- Once your offer is accepted, hire a professional to inspect the property. They’ll pinpoint any potential issues, allowing you to renegotiate or back out if necessary.
- Your lender will require an appraisal to verify the home’s value.
Finalizing the Mortgage:
- Your lender will delve deeper into your financial details and the property’s specifics. Keep finances stable during this period; any major changes can impact your mortgage approval.
Closing:
- This is the final step where you’ll sign all required documents, pay the closing costs, and get the keys to your new home.
Golden Tips for First-Time Homebuyers:
- Stay Patient and Flexible: The home-buying journey is lengthy and might not always go as planned. Stay adaptable and keep your eyes on the ultimate prize – your dream home.
- Think Long-Term: Even if you don’t see this as your forever home, consider its resale value. Is it in a location likely to appreciate over time?
- Additional Expenses: Owning a home comes with costs beyond the mortgage. Consider maintenance, utility bills, potential repairs, and furnishings.
- Visit at Different Times: Before finalizing, visit the property during various times of the day to get a feel for noise levels, traffic, and the neighborhood vibe.
- Hire A Home Inspector: After your offer is accepted, you should get a home inspector to take a look at the home’s foundation, roof, HVAC, plumbing, etc to uncover any issues there might be.
Buying your first home is undoubtedly a significant undertaking, but with the right preparation, you can turn it into a rewarding experience. By understanding your finances, choosing the right mortgage, finding the perfect home, and staying informed and patient throughout the process, you’ll be well on your way to stepping foot in your dream home!
Your Trusted Chicagoland Mortgage Lender
Since 1909, Mutual of Omaha has always cared for its customers. We value community and want the best for our people. We want to help our customers with their home ownership goals. If you want to buy or change your home loan, Mutual of Omaha Mortgage is here to help. If you’re in Chicagoland and need help buying or refinancing, give us a call.