Whether you’ve been renting for years or just ready to move out of your childhood home, purchasing your first house is a huge (and exciting) decision. While we’d all love to pay for our dream home in cash upfront, this isn’t an option for most — and mortgages are typically the way to go.
Before diving into the home buying process, it’s crucial to evaluate your current financial situation and lock in a loan that fits your monthly budget and can cover the price of a brand new pad. Check out these tips for first-time home buyers.
Browse Mortgage Types
Wait, there are different types of mortgages?! There sure are — but no need to stress. There are multiple reasons as to why you may choose one type of mortgage over another, but down payment requirements, interest rates, and credit score are a few examples.
One of the most commonly used mortgages, a conventional mortgage, is desirable in that it’s pretty straightforward when it comes to the rates, terms, and required credit score. This type of mortgage is paid back over the life of the loan, typically during 15, 20, or 30 years.
If you’re big on planning and value consistency when borrowing, you might also want to consider a fixed-rate mortgage. With this type of loan, you can expect the same interest rate and payment amounts throughout the life of your mortgage. Learn more about mortgage types we offer at Discovery Federal Union.
Getting pre-approved for a mortgage not only gives you a rundown of how much a lender will give you to purchase your home, but also gives you the tools to go into the home shopping process with a budget, rates, and terms in mind. In fact, it even shows realtors that you’re a serious buyer, giving you a better chance of scoring your first dream home.
To prepare for the pre-approval process, you’ll want to gather W-2s from the past couple of years, a copy of your most recent pay stubs, and proof of assets (such as bank statements and retirement plan statements.)
Decide on a Budget
When taking out a mortgage to purchase your first home, your budget doesn’t have to equal the amount you’ve got stored in your savings. Rather, it should revolve around “how much home you can afford”, a.k.a, how much a lender will give you to buy your home.
The loan amount is based on a number of factors, such as credit score, your monthly income, and any pre-existing debt. However, it’s important to remember that just because you qualify to take out a huge loan … doesn’t mean you can necessarily afford it.
As is the case with any loan, the more you borrow, the larger your monthly payments will be. Proving that you can pay back a hefty mortgage due to a picture-perfect credit score won’t be comfortable in the long run if your payments become unmanageable.
Shop Around with Your Budget in Mind
Now that you have a better idea of your mortgage type, amount, rate, and terms, it’s time to hit the ground running and browse homes that fit your budget. While home style and neighborhood may be at the top of your checklist, it’s also important to factor in any short-term and long-term costs that you might run into.
For example, what will the price of the move look like? If you plan on relocating to a new city or even a different state, moving trucks, storage units, and additional moving expenses can certainly add up. If you’re looking into a home that’s considered a “fixer-upper”, how you plan on funding remodeling or construction projects should be kept in mind, too.
By narrowing down a selection of homes that meet your budget now and down the road, you can browse with the confidence needed to purchase your first house and make memories to last a lifetime.
To learn more about how to purchase your first home, explore Discovery FCU’s mortgage options today.