Purchasing a home is a process, no matter what stage you are at in life. After all, there are so many factors to consider, including knowing what you’re looking for, how much you can spend, how much can be set aside for improvements, and more. This process is much more challenging for young, first-time home buyers because they lack experience and also are likely to still be paying off student loans, which makes it hard to save up for a down payment. However, it is important to understand that you do have options, including a home loan.
If you are considering moving to the Lexington, SC area, consider partnering with the Lafayette Team with EXP Realty. We are a knowledgeable and successful residential real estate team. We specialize in working with first-time home buyers and can guide you through this process.
In this article, we’ll offer a few home loan tips for young families to help you get the home of your dreams.
What is a Home Loan?
A home loan, or mortgage, is a secured loan used to purchase a home. Since a home is typically the largest investment that most people make, they typically turn to home loans.
It is important to understand how a home loan works. First, you need to save up enough for a down payment. However- even if you cannot, you may still be able to purchase the property. The down payment simply reduces the amount that you have to borrow. The property is used as collateral, which means that if you don’t make the payments, the lender can seize it.
8 Home Loan Tips
Below, we will explore 8 home loan tips for first-time home buyers.
Evaluate your debt
Lenders are going to look at your debt-to-income ratio, or DTI. Your monthly debt- with a mortgage payment- should not exceed 36% of your gross monthly income. According to the Consumer Financial Protection Bureau, a maximum DTI of 43% is required to receive a mortgage. Therefore, it’s important to get your debt under control before you move forward with applying for a mortgage. This includes:
- Credit cards
- Installment loans
- Student loans
The more you can get paid off before applying for a mortgage, the less you’ll stress over monthly payments.
Check your credit
The higher your credit score, the lower the interest rate you’ll qualify for. Checking your credit will help you know what you need to address to improve your credit score. There are several ways you can do this:
- Reduce credit card debt
- Increase credit card limits
- Dispute errors
Typically, mortgage lenders require a credit score of at least 620. However, it is possible to qualify for a mortgage with a credit score as low as 500- but you may have a higher interest rate and a larger down payment.
Assess your budget
Once you are a homeowner, your budget is going to change because you’ll have additional costs beyond the mortgage payment including maintenance, insurance, and property taxes. Additionally, your utility bills may increase, and you’ll need to have money set aside for emergency repairs.
Calculate your down payment
Your down payment is determined by the type of mortgage you receive. Typically, down payments range from 3.5% to 20%. The higher your down payment, the lower risk you are to the lender. Many lenders require private mortgage insurance, or PMI, for buyers who put down less than 20%. This protects the lender if you default on your loan. When you are considering your options, it may help to meet with a mortgage loan officer to understand the requirements of each.
Obtain a pre-approval
Once you’ve done some credit repair and paid down your debt, you will want to obtain a pre-approval. This will help you determine exactly how much you will be able to borrow, which can guide your home search and help you avoid disappointments. Additionally, a pre-approval shows that you are a serious buyer and allows your agent to confidently make offers on your behalf.
Decide what type of home you want
When you know what you’ll be able to afford, you can narrow down your home search. It helps to have an understanding of the homes that are available:
- Single-family homes
When considering the type of home you want, you’ll want to think about the space you need, the cost of each type of home, and any additional fees that may be required.
Research the area
When shopping for a home, you’ll want to research the area that you’re considering moving to. Some of the features to consider include:
- Property taxes
You may want to try to visit the area at various times of the day to get an idea of what life may look like.
Take your time and shop around for the best home loan rate. A stud by Freddie Mac revealed that buyers who get quotes from at least one additional lender save an average of $1,000 over the life of their loan. Buyers who get up to 5 rate quotes save an average of $3,000.
When comparing lenders, make sure that you also look at lender’s fees, closing costs, and other fees.
Ready to Settle in Lexington or Lake Murray?
If you’re a first-time home buyer that is considering settling in Lexington or Lake Murray, contact the Lafayette Team with EXP Realty. We specialize in first-time home buyers and can help you find your dream home with a mortgage you can afford.