The New Year is a symbol of new beginnings, goals, and possibilities. For many Americans, one goal is to own a home – and in 2019, thousands of prospective first-time homeowners will enter the housing market for the first time. To effectively navigate the process of purchasing a home, first-time buyers should use everything at their disposal to optimize the likelihood of their success. Leverage the following tips as you enter the market as a buyer to help you save money and avoid common pitfalls.
Begin Saving For Your Mortgage Down Payment Early
While it’s standard to put 20% down, many lenders allow first-time buyers to put down as little as 3%. However, putting down any less than 20% may result in steeper costs for private mortgage insurance, and depending on the price of a home, a small down payment can still be pricey. Consider using a down payment calculator to determine your ideal down payment. When it comes to saving for your down payment, it’s a good idea to stow away tax refunds, establish a saving plan, and use a financing application to monitor your savings.
Research Your Mortgage and Down Payment Options
With so many mortgage options available, conducting comprehensive research is the best means of evaluating the pros and cons of each. If you are having trouble financing a down payment, you may want to consider federal housing loans that allow down payments as low as 3.5%, conventional mortgages that abide by government-endorsed entities and permit as little as 3% down payments, or Veterans Affairs Loans, which may not necessitate a down payment at all.
Keep in mind that your down payment’s amount will have an impact on your monthly mortgage and interest rate payments. If you’re aiming for the smallest mortgage payment available, select a 30-year settled mortgage. If you can finance larger payments each month, opt for a 20- or 15-year settled loan, which will come with a lower interest rate. If neither of these options works, you may favor an adjustable-rate mortgage. Even though it’s a riskier choice, it ensures a low interest rate throughout the first years of your mortgage.
Figure Out How Much You Can Afford
You should know what’s within your price range well before you begin looking for a home. Use a home affordability calculator that considers your annual income, personal financial situation, and the area you plan to buy a home in to determine how much you can realistically spend.
Monitor Your Credit
Approval for a mortgage loan is contingent upon your credit, which will also be instrumental in determining your loan terms and your interest rate. Be sure to review your credit before submitting any mortgage applications. In addition to searching for ways to improve your credit, pay close attention to any errors that may be impacting your credit score to optimize the likelihood of getting improved for a mortgage loan.