If youre buying your first home, youll most likely rely heavily on your REALTOR to walk you through the process but before you even start looking at homes for sale in Nashville, Brentwood, Franklin or another Middle Tennessee community, these seven tips can help you get off on the right foot.
7 Essential Tips for First-Time Homebuyers
Check out these seven essential tips for first time homebuyers:
- Start saving early
- Figure out how much home you can (reasonably) afford
- Check your credit score and take steps to improve it
- Learn about your mortgage options
- Find a skilled REALTOR to help you
- Ask your agent about homebuyer assistance programs
- Get preapproved for a loan
Its a good idea to run through these tips before you even start looking at homes for sale in Middle Tennessee. Heres a closer look at each.
Tip #1 for First-Time Homebuyers: Start Saving Early
Though you should talk to a financial professional about saving money for a down payment, traditional wisdom says that the higher your down payment is, the lower your monthly payments will be. Ideally, youll save up at least 20 percent of your next homes purchase price to use as a down payment. If you put down less, your lender will most likely consider you a bigger risk, and as such, itll make you pay for private mortgage insurance. Private mortgage insurance (commonly called PMI) is insurance that protects your lender if you default on your payments. In most cases, its best to save up as much money for a down payment as possible.
Tip #2 for First-Time Homebuyers: Figure Out How MuchYou Can Afford
If youre paying rent right now and doing okay, its safe to say that you could afford a monthly mortgage payment in a similar amount. However, youll have to factor in things like repairs and maintenance, property taxes, homeowners association dues and other homeowner expenses. Additionally, your lender may see things differently than you do; lenders look at your debt-to-income ratio, which is a measurement of how much monthly income you bring in versus your monthly debt obligations. Most lenders want your debt-to-income ratio, or DTI, to be lower than 36 percent (with no more than 28 percent of your income going to rent or mortgage payments).
Related: The scoop on using a VA loan to buy a home
Tip #3 for First-Time Homebuyers: Check Your Credit Score
Though every lender has different credit score requirements (and every loan product has its own, too), its a good idea to brush up your score as best you can before you apply for a mortgage. Thanks to the Federal Trade Commission, youre entitled to a free copy of your credit report from each of the major credit reporting agencies (TransUnion, Experian and Equifax) every year. You can get yours at AnnualCreditReport.com. You can also download an app, such as Credit Karma, to monitor your credit score. If you find any errors on your credit report, dispute them credit agencies are legally required to investigate errors and correct them.
Lenders look at your credit score to determine how risky you are as a borrower. The higher your credit score is, the less risky you are. That means if your credit score is 750, lenders will offer you lower interest rates than theyd offer a person with a 600 credit score.
Tip #4 for First-Time Homebuyers: Learn Your Mortgage Options
There are hundreds of mortgage products available at any given time, and that means you have a lot of options. But before you consider individual mortgage products, know that there are many types of loans, including:
- Fixed-rate mortgages. With a fixed-rate mortgage, your interest rate stays the same for the entire duration of the loan.
- Adjustable-rate mortgages. With an adjustable-rate mortgage, you have a period (usually five, seven or ten years) where your interest rate stays the same. At the end of the introductory period, your interest rate will fluctuate annually based on market conditions.
- Variable terms. Loans can last just about as long as you want them to, though the most common terms are 15 years and 30 years.
Tip #5 for First-Time Homebuyers: Find a Skilled REALTOR
Buyers always benefit from working with a skilled, knowledgeable REALTOR. It doesnt cost you anything to work with a real estate agent; the seller pays for your agents commission. Working with a REALTOR comes with plenty of benefits, too. Your agent will be able to find you homes that meet your criteria, set up showings, negotiate with the seller on your behalf so you get the best possible deal, and ensure that all the appropriate legal paperwork is in place.
Tip #6 for First-Time Homebuyers: Seek Out Homebuyer Assistance Programs
Your REALTOR can help you find local homebuyer assistance programs that you may qualify for. Homebuyer assistance programs are available through many organizations, and some can give you one-time grants to use toward your down payment. That saves you money now and in the future; the higher your down payment is, the lower your monthly payments will be.
Tip #7 for First-Time Homebuyers: Get Preapproved for a Loan
Before you start looking at homes for sale, get preapproved by a lender. That way, you know exactly what your budget is and when you find the right home, you can make an offer quickly. Sellers take offers more seriously when they know the buyer is actually qualified to make the purchase, so its a good idea to have a preapproval in your hand when you find your dream house.
Are You Buying or Selling a Home in Middle Tennessee?
If youre buying or selling a home in Middle Tennessee, Benchmark Realty has you covered.
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