You’ve decided — it feels like it’s time — to buy a house. That’s the easy part. The actual home buying process is, especially for first-timers, a mix of excitement, pride and anxiety. Here are five tips to help smooth the journey:
Address your credit
You’ll almost surely be taking out a mortgage, making it a lead-pipe cinch that lenders will dive into your credit history and examine your credit score to determine whether you pose a risk. If you have large credit card balances, start paying them down to show that you don’t need to use all of your available credit.
Help guard against potentially false, damaging information by fact-checking what the credit-reporting agencies have compiled. You can view your daily credit score and monthly updated credit report for free in the Mobile Banking app.
Determine how much house you can afford
As you begin to check listings and scroll through the any number of home buying apps, you’ll get used to seeing price tags in the six figures and thinking, “I can afford that.” A better way to figure out how much house you can afford is to use a calculator and look at what your monthly obligation would be.
A good rule of thumb is to not spend more than about 35 percent of your pretax income on mortgage, property tax and home insurance payments. And consider, too, the total cost of owning a home: not just these payments, but also setting aside money for repairs and upkeep.
Pre-approval can help
If you live in a “hot market,” where buyers outnumber sellers, you’ll have little chance of being seriously considered unless you have a pre-qualification or pre-approval letter from a mortgage lender.
Going through the pre-qualification process can also help you spot potential issues with your credit, enabling you to correct them before you start seriously shopping for a home. Mortgage rates have been steadiy low the past couple of years, and the time couldn’t be more perfect to lock down a great rate while they last.
Pick the right mortgage
There’s a dizzying array of mortgage options out there. The most fundamental decision boils down to choosing between a fixed rate or adjustable rate.
Fixed-rate mortgages commonly last for 15 years or 30 years, and a big advantage is there will be no surprises. For the life of the loan, you know exactly what your monthly payment will be. Take the 15-year mortgage and you’ll pay more per month but save significantly on total interest. Go with the 30-year and you’ll have more money available each month for investments and discretionary spending and to cover other bills.
With an adjustable-rate mortgage, the initial interest rate often is lower than what you’d pay with a fixed-rate mortgage. But when the “teaser” rate expires, usually in five years or less, you will be subject to a substantial rate bump. At that point you may want to refinance. Most people who choose ARMs choose them when they want to get lower introductory rates and don’t plan to stay in the home for any longer than the introductory low-rate period.
Find a good agent
The agent listed on a property’s “for sale” sign represents the seller. His or her goal is to get the most money possible for the seller, and to earn a full commission in the process.
You want someone to represent your interests as the buyer, someone who understands what you’re after and your means, and who can negotiate with the seller’s agent. Family members and friends may be able to guide you; otherwise, there are a number of groups you can search.
It takes time and research to get things lined up for such a major purchase. Don’t rush yourself. When you consider the stakes — sealing the deal on your first home — it’s worth the wait and effort. Find out more detailed information about our mortgage loans here. For a FREE mortgage consultation, call our mortgage experts at 636.720.2495.
Peter Lewis, NerdWallet
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