But what, exactly, do you need to know before you jump in with both feet?
3 Tips for First-Time Home Buyers
First things first: Make sure you have a skilled, knowledgeable Lakewood Realtor® in your corner who can help you through the entire process (and beyond).
Step 1 to Buying a Home: Check Your Credit
Thanks to the Federal Trade Commission, we’re all entitled to a free copy of our credit report each year.
Visit AnnualCreditReport.com to get yours.
Your credit report contains information from the three major credit reporting bureaus: Equifax, TransUnion, and Experian.
What to Do With the Information on Your Credit Report
Check your entire credit report for mistakes, unpaid accounts, or collections. If you see an error, dispute it with the bureau reporting it—and don’t wait. The sooner you report the error and submit proof that it is, in fact, an error, the sooner they can correct it and adjust your credit score.
If you see that you’re using more credit than you should (lenders look for how much of your available credit you’re using to make lending decisions, including interest rates), start paying down your debts as quickly as possible.
Step 2 to Buying a Home: Organize Your Documents
Pull together pay stubs, tax returns from the past three years, and proof of other income, and gather up all your bills, credit card statements, and bank account statements, too. Put them all in a folder where you’ll have easy access, because you’re going to use this information to get preapproved for a mortgage loan.
Preapproval serves three major purposes. First, it shows you just how much you can spend on a home so you don’t waste time looking at houses in the wrong price ranges. Second, it gives you a head start on the mortgage application process so you can act quickly when you find a home you love. Finally, it shows sellers that you’re a serious buyer who has the money to back up your purchase offer.
Step 3 to Buying a Home: Figure Out Your Down Payment
You don’t have to put down 20 percent of a home’s purchase price to buy a home, although in most cases, it’s tremendously helpful to do so.
Remember that if you’re not putting down 20 percent, you’ll most likely have to pay for private mortgage insurance, or PMI. You’ll have to continue to pay for it until you’ve built up 20 percent equity in your home—and because traditional loans are structured so that you pay mostly interest for the first several years, that can take a while. (There are a few exceptions, such as a VA loan, that let you put nothing down without paying for private mortgage insurance—but they’re very limited and not available to everyone.)
Some programs, such as FHA loans and a handful of others, allow you to put down as little as 3.5 percent of a home’s purchase price when you’re buying. These, too, require you to buy private mortgage insurance.
What is Private Mortgage Insurance?
Private mortgage insurance protects the lender if you default on your payments. Lenders believe that if you aren’t committed enough to a home to come up with a 20 percent down payment, you’re more likely to default—and PMI pays the lender if you don’t.
Are You Buying a Home in Long Beach?
If you’re ready to start your home search, we’re here to help. Call us at 562-882-1581 to let us know what you need. We’ll help you find it.
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