With house prices dropping and more people saving during the pandemic, you might be interested in buying your first home. Before you get the keys and walk in, there are many factors that you need to know before you start. Here are home loan tips for first time home buyers that you’ll want to cross off before you buy your first home.
- Have a good credit score
Having a good credit score will put you in an excellent position to get a good deal on your home loan. With a good credit score, you’ll be more appealing to lenders, so make sure you check your credit score before applying for a home loan. You can get a free credit report online that will help you determine where your credit score is and where it needs to be.
- Pay off bad debt
In addition to having a good credit score, paying off bad debt is equally important in getting a good deal on your mortgage. Regarding paying off debt or saving for a down payment, you should first focus on paying off debt, which will increase the mortgage amount you qualify for by about three times more than only saving the money for a down payment.
- Shop around for at least 3 loan providers
When looking for a loan provider, shop around for multiple options so you can find the best financing deal. Your mortgage price and terms may be negotiable from lender to lender. So you’ll want to compare and contrast all the costs of obtaining a loan provider to get the best loan possible.
- Get pre-approved for a loan prior to searching for houses
Before you even start searching for houses, it’s best to get pre-approved for a loan to identify any obstacles that may come in your way, such as a low credit score. This will help narrow your house price range and make you stand out from other house buyers that have not been pre-approved for loans.
- Leverage FHA loan
FHA loans are insured by the Federal Housing Administration and allow down payments as low as 3.5%. To qualify for an FHA loan there are a variety of factors that you must pass. These include having a FICO score of at least 580-640, purchase a home that does not exceed FHA loan limits, and being able to afford housing payment and any existing debt. Make sure you apply for the correct type of FHA loan and understand the costs of an FHA loan.
- Think about refinancing
If you pay less than 20% down payment, you can refinance your loan down the road to lower your monthly payment. Refinancing can be for many reasons, including purchasing as a fixer-upper or just making some home improvements. If you plan to refinance, know your needs as different goals require different loans.