10 Tips for First-Time Home Buyers - Part 1

Our crucial tips that all first-time home buyers should know

1. Credit Score: Maintain and / or improve your credit score 

Your credit score has a large impact on the rates available to you when taking out a loan. According to Forbes, “in 20-years, someone with a 680-699 score will still pay over $20,000 more in interest on a $244,000 mortgage than a person with a high score”. Start off by checking your credit score.

Tip: If your credit score is in the 750-850 range, great job on keeping an excellent credit score! All you need to do is to maintain it by making sure not to do anything that could affect it such as taking out a new credit card. If your credit score is lower than this range, don’t worry, here are 5 tips to improve your credit score.

2. Debt / Income ratio: Lower your debt-to-income ratio

In addition to using your credit score, lenders use your debt-to-income ratio to decide whether you can afford the monthly payment. Your debt-to-income ratio is calculated by adding up your monthly debt payments. While there are two types of DTIs, most lenders use back-end DTI calculations meaning that they include all your monthly debt payments (new and existing mortgages including tax, insurance and HOA/maintenance, credit cards, car loans and leases, student loans, and any other personal loans), and dividing this value by your monthly pre-tax income. The general rule is that for most loans, your DTI should be less than 50%.

Tip: If your DTI is higher than ideal, consider paying off high-interest debts (so your payments have the most impact), finding lower interest rates for your debts (to lower monthly interest payments) or extending the loan duration (to spread out the payments more).

3. Total cost of home ownership: Make sure you’re aware of all the costs of buying a home.

The costs of buying a home can add up quickly. While some expenses may be obvious such as the monthly loan payments, don’t forget about some of these other one time and ongoing costs.

1. One time

   1. Closing costs 

   2. Moving expenses 

   3. Ongoing 

      1. HOA / maintenance 

      2. Insurance 

      3. Property taxes 

      4. Utilities

Tip: Make sure you’re aware of all the upcoming costs by talking to your realtor and loan officer so that you can budget them into your considerations of how much you can afford in a home.

4. Preparation: Get your paperwork ready

You may want to close quickly due to an impending move or to have an upper hand when competing with a buyer with a slower timeline. If you want the process to move relatively quickly, only a few things are in your control. One of those things is to have your paperwork ready to submit to the lender once you officially apply for a loan. Your lender will want information on all assets and liabilities, including investments, credit card statements, renting history (such as letters from your landlords confirming that you paid rent on time). Oftentimes, this is one of the most time consuming parts of the process and your lender will not begin assessing your loan application until all documents have been submitted.

Tip: Shorten this period by having everything ready to go as soon as you submit your application 

5. Inspection: Research home inspectors and lawyers

Depending on the state and type of home, you will likely need a home inspector and/or lawyer before closing. You can ask your realtor or friends and family for recommendations.

Tip: Try and have a conversation with prospective inspectors and lawyers about their methodology. Don’t forget that pricing can also differ between individuals so make sure you compare.