Is it time for you to leave the world of renting? Are you done with renting and are now ready to take the next step: owning your own home? If you’ve asked yourself either of these questions recently, it may be time to start thinking about your homebuying process. When you rent you’re actually paying someone else’s mortgage - why not let it be yours?
However, there can be a lot of factors to consider before you take the plunge into real estate. This is why we’re here to help. We want to make sure you’re provided with all the necessary information so you can go through these next steps as smoothly as possible. And even though every person’s situation can be different, we want to give you answers to some of the most common questions that are asked by first-time homebuyers. Let’s get into it.
What Are the Steps to Get Started?
As exciting as home-buying can be, there are about four check-ins to give yourself before you approach the actual home search.
Step 1: Assess your finances. Check your credit score, examine your budget, and research your ability to make a down payment.
Step 2: Determine the right mortgage option. Determining the right mortgage for you may seem daunting, so here’s some info on the most common mortgage loan types.
Fixed-Rate: A fixed-rate mortgage loan has a specific interest rate for the entire term of the loan. It typically consists of a higher payment amount, but your rate will never change over time, regardless of the fluctuations in the housing market. It is a stable option for those who want to stay consistent with their finances.
Adjustable-rate: Adjustable rates will start at a lower amount for about 5-10 years before being adjusted either up or down at a predetermined interval. These loans are more complex and can have the potential to create much bigger payments over time. It’s a temporarily cheap choice, but the risk is more apparent.
Conventional: Conventional loans are ideal for those with good credit and a stable source of income. They are given out by private lenders and are not backed by any government programs. If you qualify, they have typically the lowest interest rates and the simplest application process. They also tend to cost less than the majority of other types of home loans.
VA Loan: Veteran Affairs home loans are provided by private lenders for Service Members, Veterans, and eligible surviving military spouses who want to own homes. The VA guarantees a portion of the loan, enabling the lender to provide you with more favorable terms. VA loans normally have no downpayment required, low interest rates and limited closing costs.
FHA Loans: If you think you may not qualify for a conventional loan, FHA loans are another option. They are mortgages created by private lenders but are insured by the Federal Housing Administration, a government guarantee that assists you in getting a mortgage you may not have been able to qualify for otherwise. While they have more flexible qualifications, they can end up being more expensive over a loan’s lifetime because the cost of the government’s guarantee is being passed on to you. You could be paying multiple mortgage premiums, higher interest rates, and a bigger percentage of your down payment.
Step 3: Get quotes from mortgage lenders. Getting a rate quote is a good starting point for loan offers. Mortgage rates change regularly and can vary by lender so comparing multiple quotes to see where you will get the lowest interest rate is imperative.
Step 4: Get preapproved for your mortgage. A preapproval is an initial commitment from a lender to loan you a certain amount of money, not a finalized offer. Getting one is necessary before you start searching for a home because sellers won’t consider your offer unless they know you have the financing lined up. The preapproval basically states how much you can borrow, what loan program you’re using, and the expected down payment you can make. It’s important to stay organized with your paperwork as it makes the overall process smoother when you request a preapproval.
Step 5: Find the right real estate agent. Here at LRG, we have plenty of capable real estate agents who can help you find what you need. Many of them even specialize in first-time buyers and will know exactly how you are feeling and what you may be going through. You can talk with them about their communication style and how they help other buyers navigate the market so you know what to expect from them. Agents can also help you determine an exit strategy and plan for unforeseen issues and emergencies that could create a need to sell in the future. LRG agents are prepared to help you attain what you want. They want you to win and achieve what you’ve been working towards. Whether you work with us or not, our goal is for us to help you win.
When’s the Best Time to Buy?
Honestly, the best time to buy is right now. According to American finance personality Dave Ramsey, the next 6 months are the best time to buy a house. Prices are increasing slowly; they’re the cheapest they’ll be in the next 5 years. For those waiting for prices to drop again, it’s not happening. Buy your home soon to benefit the most from it. And if interest rates do go back down again, the simplest option is to refinance. If you’re needing to sell your home before you can buy again, there’s good news. The next 6 months are actually the best time to sell your home as well. There are still remnants of a hot market in play and homes are being snatched up quickly. It’s a luxury that unfortunately won’t last forever. If you’re wanting to listen to more additional insight, tune in to Why Right Now is the Best Time to Buy a House.
Coming back around to buying, there is currently plenty of inventory available in Central Texas. From new builds to pre-owned homes, there are many options to choose from that are sure to fit what you’re looking for. Not only that, but market prices are experiencing cuts, and interest rates have recently risen. They are expected to rise again several more times in the near future, so if you’re at a point where you can make an offer on a house you love, now is the time to do it. Even buying a year from now could have you paying about 8-10% more in interest rates. If you need help navigating this process, seek out an experienced agent who specializes in first-time buyers because they’ll know what is possible and make it happen for you.
How Important is a Good Credit Score?
If you need to apply for loans, a credit score check is necessary. And while you don’t necessarily need to have a great one, you will need to have a decent one. The better score you have, the better rates you will receive. The good news is you can always work to improve your credit score if you need to. You can look into bank statement loans as they have a better chance of accepting lower credit scores or push back your plans a few months to work on improving them. It may take more time, but we promise it will be worth it in the end.
How Do I Decide What is an Affordable Mortgage?
The answer is simple: speak with an agent. Real estate agents will have the best bank of resources. Not only will you save yourself a lot of time that would’ve been spent on Google, but it can help save yourself some stress as well. Agents can connect you with a lender who will personally work with you and find the best options for your financial situation. Just be sure to know the basis of your finances and general budget so you can talk with them about it.
Are There Any Hidden Costs I Should Know About?
Mortgage insurance is a sneaky possibility. It’s basically protection insurance money for more risky loans. It seems pesky, but can actually be very important. Mortgage insurance helps manage the risk lenders take when less money is put down on a house. Everyone’s price is different, but expect to generally pay at least a couple hundred dollars a month if you get it. Other additional costs can include closing costs. Always account for this in your budget because they consist of Lender Fees, Title Company Fees, Government Fees, and Inspection Fees.
What Else Should I Consider with My First Home?
A first home is typically called a starter home for a reason. It’s normally considered an investment, a purchase that will accumulate equity for the future. And while it may not meet all of your dream home wishes, you can still find something amazing. First homes are the beginning of your journey toward creating long-term wealth and bold statements of independence.
LRG wants to help you find that ideal first home. We know how important it is to you and how hard you’ve been working for it. Now, it’s time for you to begin your journey with a toolbelt better equipped with the proper information you need so you can make your goal of owning a home a reality.
