1.) Plan ahead and start saving early. There are lots of ways for a first-time homebuyer to save, from maximizing your earnings by selecting the right banking and retirement plan options, to setting up an automatic savings plan.
2.) Determine how much down payment you can afford. While 20% or more is ideal and will save you from needing to purchase private mortgage insurance to cover the difference, that figure may not be realistic for you. A down payment calculator can help you figure out whether to buy less house or take on more debt. Ideally, your monthly mortgage payment should not exceed 36% of your gross income. And don’t forget about additional expenses, like moving, closing costs and homeowners insurance.
3.) Investigate all available loan and mortgage options. You may qualify for a first-time homeowners loan through a veterans mortgage program or grants through state, federal or local programs. You may even be able to use several different sources of down payment assistance at once.
4.) Optimize your credit score. Once you’ve figured out how much you can spend and what you’ll need to save, focus on your credit. It can have a major impact not only on getting approved for a loan but also on your mortgage terms and interest rates. Look for ways to improve your credit score, such as disputing errors and addressing outstanding debts.
5.) Do some comparison shopping. Get mortgage rate quotes from several different lenders so you can compare terms, rates and fees. If you can afford it upfront, ask lenders if you have the option to prepay interest and secure a lower interest rate on your loans by purchasing discount points.
6.) Find the right real estate agent. After you decide where you want to live — and you’ve investigated the schools, crime rates and distance to local amenities — find a real estate agent who works with clients in the neighborhood(s) you’re targeting. As with most things, do your homework and get a good referral from someone you trust.
7.) Get your paperwork in order — including the preapproval letter. Gather the required documents to apply for a first-time home buyer mortgage, including pay stubs, tax returns and bank statements. And before you make a serious bid on a home, ask your bank or lender to give you a preapproval letter. You’ll need to fill out an official mortgage application and provide them with documentation for proof of income, assets and credit.