Are you preparing to buy a new home? If this is your first rodeo as a home buyer, you can attest that the experience is as scary as it is exciting. It’s easy to be carried away by the whirlwind of home shopping and end up making blunders that could leave you with homebuyer’s remorse soon after. To help you become a happy first-time homebuyer, we’ve listed some helpful pro tips so that you know what to do to get the best mortgage rate.
Tips on How to Save for a Down Payment
1. Save up a 20% down payment
A conventional mortgage generally requires you to have a down payment of a minimum of five percent of the purchase price. If you’re taking up an FHA loan, you will be required to put down at least 3.5 percent of the purchase price.
While a low down payment option seems attractive, it not only attracts a high-interest rate, but it also requires you to pay mortgage insurance, which generally adds between 0.5 and 1 percent of the loan amount. To avoid mortgage insurance and get the lowest possible interest rate, you should put down at least 20 percent of the full purchase price.
2. Start Saving Up For The Down Payment Early
Note that even a low down payment can still be hefty. For instance, a five percent down payment on a $300K home is $15,000. The ideal down payment of 20 percent of the same house is $60,000.
The secret to ensuring that you will manage to put down a sizeable down payment is to start saving up for the down payment early. If you save $1,500 a month, it will take you three years and four months to have the down payment.
3. Save Up The Down Payment In A High-Yield Savings Account
Note that money saved in a regular savings account doesn’t earn much interest. To achieve your savings goal faster, you should consider saving your money in a high-yield or money market account. These types of accounts generally give a bit more interest compared to regular savings accounts.
4. Set Up An Automatic Savings Plan
Saying that you’ll be saving $1,500 per month is one of those things that are easier said than done. To ensure that you won’t forget or ignore to save up as planned, you should set up an automatic savings plan. Work out the best method based on your situation.
Note that many states offer homebuyer programs for first-time buyers. One such program is the down payment assistance program. Therefore, you should check with your municipality or county to find out whether they offer such programs and whether you’re eligible.
Tips on How to Find the Best Mortgage Rate
1. Improve Your Credit Score First
Your credit score is one of the factors that mortgage lenders will look at to determine whether you’re creditworthy or not. It’s also what will help establish your interest rates and loan terms. So, before you start the home buying process, you should check your credit score. If you have a poor credit score, you should look for opportunities to improve it before applying for a mortgage loan.
2. Explore Your Mortgage Options
There are different mortgage options available to home buyers, which include conventional mortgages, FHA loans, and VA loans. Each of these mortgage options has its unique features, as well as its fair share of pros and cons. Therefore, you should explore all options and compare mortgage rates to determine the one that has favorable terms.
3. Get Pre-Qualified For A Mortgage
Getting pre-qualified means getting an estimate of how much a lender is willing to lend based on your income, debt, and assets. Therefore, it’s a smart move to get a pre-qualification letter, also called a pre-approval letter, where a lender will examine your overall financial picture and confirm in writing how much they are willing to lend you, and under what terms. With a pre-approval letter, you’ll have a competitive advantage over other home buyers.
4. Negotiate The Right Price
The home purchasing process is all about mastering the art of give-and-take. Learning what to negotiate will give you the advantage of being able to craft an offer that not only appeals to the seller but also works in your favor. Aside from the buying price, there are various other solid negotiation points to consider when writing an offer, which includes closing costs, repairs, contingencies, and closing schedule.
With so many things to consider, the home buying process is undoubtedly challenging for first-time homebuyers. To improve your chances of becoming a happy homeowner at the end of that intricate process, you should consider hiring a real estate agent. An ideal buyer’s agent is one who’s skilled, experienced, and knowledgeable about the area’s real estate market.
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