Becoming a homeowner is an incredible life milestone, and one that can be made much easier with the proper preparation and expert guidance. Here are 10 things to consider before you buy your first home to help the process run as smoothly and cost-effectively as possible.
 

The first thing you should do—before you even go house hunting—is become a PremierBuyer^TM for a home loan. Why? A PremierBuyer^TM letter¹ will help you set your budget and make you more attractive to sellers. This shows that you’re a serious buyer, and that you have the means to secure a mortgage once you’ve made an offer. 

You don’t need to have perfect credit to secure a home loan, but it’s important to know where you stand since your loan amount and interest rate will depend largely on your credit score. 

Start by obtaining free copies of your credit report from major credit bureaus, and study them for errors or discrepancies. It’s important to be mindful of avoiding activity that could affect your credit throughout the homebuying process, including paying bills late, carrying high credit balances, opening or closing lines of credit, or making other major purchases. 

While there are many, some common ways to improve your credit quickly include paying off credit balances to below 30%, which may have a positive impact on your credit score. 

While all homebuyers’ personal financial situations will vary, a common starting point in determining a budget is by applying the 28/36 rule. This states that you should spend no more than 28% of your pre-tax income on principal, interest, taxes, and insurance (PITI), and no more than 36% on all debts. That not only includes your PITI, but also credit cards, student loans, and any other debts. 

And while the adage is that you need 20% for a down payment, that’s not necessarily true. Remember that a higher down payment will mean lower monthly payments throughout the term of your loan, but you can sometimes put down as little as 3%². Think about how much you can comfortably pay up front versus what you’ll be able to afford each month over the term of the loan. 

Many first-time buyers focus on the home price and down payment, but there are other costs associated with buying a home that you should plan for early in the process. Factor in funds for a home inspection, mortgage insurance, homeowners insurance, and closing costs. These will largely vary based on the size and purchase price of the home, so do your research once you’ve found one you like to determine how to work them into your budget.

You may be asked to provide earnest money after the purchase contract is signed. This money is a show of good faith to sellers to prove that you’re serious about following through with the sale. This money will ultimately be applied to your down payment or closing costs. 

Think about the home you want to buy. How many bedrooms does it have? Do you want to buy a condo, townhouse, or single-family home? What kinds of specific features do you consider must-haves versus nice-to-haves?

But paying close attention to the area should be just as important. Remember that there’s a lot about a home you can change once it’s yours, but its location is not one of them. Is there a homeowner association in the neighborhood or building? What features are nearby in the community? Research comparable home values in the area, so you can get a good sense of what you can afford in that particular neighborhood. 

There are many different loan types to choose from, and you’ll need to decide which works best for your individual needs. You’ll want to consider your loan term, or the length of time you must pay off the loan, which will significantly affect your monthly payments. You’ll also decide between a fixed-rate loan which carries a stable interest rate over its entire term, or an adjustable-rate loan which features a fluctuating interest rate. 

There are also various loan categories to consider such as conventional, government (FHA, VA, USDA), and portfolio/specialty loans. Discuss the details of each with your lender to determine which one is best for you.

There is a wide range of federal, state, and local incentives that are available for first time homebuyers, including down payment assistance, grants, and tax credits.³ Research the programs in your area, and see if you might qualify to save money or receive financial assistance.⁴ 

When buyer competition is high, bidders will sometimes waive a home inspection to make an offer more attractive to a seller. While this may secure you the home, it could lead to major—and potentially costly—problems down the road.

Professional home inspections are meant to ensure there’s nothing wrong with the home that can’t be readily seen on a standard property tour. This includes the plumbing, the electrical system, the roof, and the foundation. These are all vital elements to a functioning home and can be very expensive to fix if there’s a problem. It’s beneficial to have a clear understanding of their conditions before they become your financial responsibility. 

It’s also important to know that there are additional tests you can pay for (and which may be required), including radon, mold, or pest infestations, that don’t usually come with a standard inspection. 

To help you become acquainted with the homebuying process, there are seminars you can attend to walk you through the basics in greater detail. These can be invaluable resources if you’re unfamiliar with everything that goes into buying a home and can provide a place to ask questions that are more specific to your personal situation.

There’s a lot to think about when you’re buying your first home, and nobody is going to expect you to understand everything right away. Find a real estate agent that you already know or can get to know and trust, as well as a knowledgeable lender who can help walk you through the mortgage process. Set yourself up for success, and don’t be afraid to ask for help. 

Everyone deserves to achieve homeownership. From learning more about the basics of homebuying to starting the prequalification process, your friendly lending experts have all of the tools you need to set yourself up for success.