Don’t Be Shy: Money Questions First-Time Home Buyers Must Ask
Being first-time home buyers can be intimidating. There are times when first-time home buyers might be embarrassed to ask what terms mean or basic questions. But first-time home buyers should be prepared to ask these questions before buying so you at least know the basics.
Do I Need A Mortgage?
If you aren’t paying cash for your new home, you will need a mortgage. But before loaning you money, lenders want to see that you have borrowed in the past and that you are reliable with your payments. This is establishing credit. Before applying for a mortgage (ideally, long before) first-time home buyers will want to open a credit card and use it carefully. The best thing you can do is make sure you pay your bills on time.
If you have bad credit there are actions that can be done to improve it. First, check your credit report. You can get free a free copy and you want to look it over to make sure there aren’t any errors. And you may be pleasantly surprised by what you find.
If you have the opposite reaction and discover a lower score, in most cases there’s an old collection, a medical bill, or something you didn’t know about that could be bringing your score down. These “errors” can and must be fixed as soon as possible in order to help boost your credit score.
Pre-Approved vs Pre-Qualified (Yes, There’s a Difference)
Getting pre-approved holds more weight than being pre-qualified. It’s easy to go online and get somebody to print you out a pre-qualification letter. But you’ll find that if you’re negotiating with a home seller, that qualification is not going to be worth much to them.
A pre-approval letter entails lenders completely checking your finances in a verifiable way. It takes more time and effort for first-time home buyers , which is exactly why it carries much more weight. When you’re serious about buying a home, you need to get pre-approved early in the process.
What Should I Plan for a Down Payment?
Typically first-time home buyers will want to put down 20% for your down payment. But if you don’t have that much sitting in the bank there are other options.
You can put down less, but that means you’ll have to pay private mortgage insurance. A PMI is an extra cost, usually $50 to $100 a month, that lenders will require to mitigate the risk of giving you a loan. It is riskier for a lender to give someone with a lower down payment a loan so this is the tradeoff.
Can I Get Help With My Down Payment?
If you need help with your down payment you might be able to get help if you have a generous family member. The “bank of the parents” could be a smart way for first-time home buyers to get a jump on your down payment.
If your parents can lend money, it will help you qualify for a loan or a better loan. But this isn’t something you can keep a secret. You absolutely must tell your lender that the money was a gift, otherwise you will raise red flags.
If a family member isn’t an option, there are over 2,000 down payment assistance programs across the country that may be able to help. There are eligibility requirements in terms of income and credit, but programs are out there.
A good place for first-time home buyers to start in researching is with your real estate lender. They can tell you about programs in your area that will help you be on your way to becoming a homeowner.