2020 is an excellent year to say goodbye to renting and hello to home ownership. Mortgage rates are at all-time lows, so you can potentially save thousands on the costs of borrowing for your mortgage.
To help you get ready to take this exciting step, we’ve compiled a list of First Time Homebuyer Tips in 2020.
1. Calculate how much you can afford to spend on a new home.
This is a crucial first step and should consider your annual salary and expected down payment amount. There are several excellent home affordability calculators you can access online to help you determine a home price that is in line with your budget.
2. Save for a down payment.
Why is this important? The more you put down, the better your interest rate and terms will be. You’ll also reduce the size of your mortgage and gain more equity in your home. There are some programs that, if you qualify, will allow you to put as little as 3 percent down, but it can make a lot of sense financially to put down more.
If you’re not able to come up with a large down payment, you might check out the FHA first time homebuyer program to see if you qualify. An FHA Loan is a mortgage that’s insured by the Federal Housing Administration. They allow borrowers to finance homes with down payments as low as 3.5% and are especially popular with first-time homebuyers.
You may also want to research first time homebuyer programs offered by the Texas Department of Housing and Community Affairs. Their options include:
- My First Texas Home
Mortgage loans at 30-year, fixed interest rates and down payment and/or closing cost assistance.
- My Choice Texas Home
Mortgage loans at 30-year, fixed interest rates with down payment and closing cost assistance – no first time homebuyer requirement!
- Texas Mortgage Credit Certificate Program
This is a first time homebuyer tax credit in Texas. Tax credits are based on the annual interest paid on a mortgage loan.
You should also set aside money for closing costs, which can range anywhere from 2% to 6% of your loan amount. Closing costs include lender fees and third-party charges such as an appraisal, recording and title insurance fees.
3. Take a critical look at your finances.
Your credit score is key when it comes to qualifying for a mortgage. It also influences your mortgage interest rate. If you haven’t run a recent credit report, it’s a good idea to get one and check for any surprises or incorrect information.
Buyers with credit scores of 740 or higher typically get the best mortgage rates, so improve your credit score as much as possible before applying for a mortgage.
To qualify for a conventional mortgage, you’ll need at least a 620 credit score. A government-backed mortgage from the Federal Housing Administration (FHA), has a minimum required credit score of 500, but the required minimum down payment jumps to 10%. If your credit score is at least 580, you can get an FHA loan with only 3.5% down.
Lenders will also look at the relationship between your outstanding debt and income. The ideal debt-to-income (DTI) ratio, which is the percentage of your gross monthly income used to repay debt, is 43% or lower. Paying down debt before applying for a mortgage loan can also help your chances of being approved.
4. Understand how PITI affects your monthly costs.
Your mortgage payments include more than just principal and interest. The acronym PITI stands for:
The taxes and insurance portion of your mortgage payment refer to your annual property taxes and homeowners insurance premiums. Check out an online mortgage calculator for an estimate of what your monthly mortgage payment will be with all four elements included.
If you put down less than 20% toward your home purchase, you’ll also be responsible for private mortgage insurance, which is added to your mortgage payments. Another item that will affect your monthly costs is homeowner’s association fees if you live in a community with an HOA.
5. Get pre-approved for a mortgage.
Getting pre-approved for a mortgage saves you time and headaches. You’ll know exactly where you stand when it comes to your mortgage loan and how much house you can afford. A lender will review finances, pull your credit and provide you with an estimated loan amount and interest rate. Once you’ve been pre-approved, take an honest look at the monthly mortgage payment that will comfortably fit your budget.
6. Research your mortgage options.
There are several mortgage types in addition to conventional and FHA loans, including loans from the U.S. Department of Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA), neither of which requires a down payment. VA loans are reserved for military service members, veterans and eligible spouses, while USDA loans cater to low- and moderate-income homebuyers looking for a property in a designated rural area.
7. Choose the right home.
Building a new home, or buying new construction, is an excellent choice for first time homebuyers. Imagine the peace of mind you’ll have knowing that you have several years ahead with no costly repairs or improvements! New homes are also built to current standards and requirements for code. And they take into consideration design for livability, energy efficiency, and smart home technology.
8. Don’t make any sudden moves.
One of the worst things you can do as a first-time homebuyer is to add debt or change your income before closing day. During the underwriting process, lenders will check these items again before closing, and notable changes could potentially delay or derail your final loan approval. To keep your loan approval on track:
- Don’t apply for a new credit card, loan or line of credit.
- Don’t cancel or close any accounts (even if you’ve paid them off).
- Don’t change jobs or quit your current job until after closing.
- Respond immediately to your lender’s documentation requests.
9. Prepare for closing day.
Before you move into your home, you’ll do a walk-through with the builder to ensure that everything is finished and has been done correctly. Your lender will also order a home appraisal, which determines the home’s current market value.
Here are some final first-time homebuyer tips for a successful closing day:
- Compare the loan estimate to the closing disclosure to check for any errors or closing cost changes.
- Participate in a final walk-through of the property and point out issues that need immediate attention.
- Confirm with the closing agent how you’ll pay the down payment and closing costs.
Visit Deerbrooke in Leander!
Deerbrooke is one of the most desirable new communities in Leander, Tx. Our builders include Perry Homes, Monticello Homes and Sitterle Homes. Each of these builders are among the best in central Texas, with track records of exceptional quality and customer satisfaction. All are family owned businesses committed to going above and beyond to make sure you have the home of your dreams.
At Deerbrooke, prices for new homes for sale in Leander, Tx start in the $250s.
To do our part in curbing the spread of COVID 19, and to keep our team and our customers safe, we encourage anyone who wants to tour one of our model homes to set up a private appointment with the builder, or to contact us directly at 512-387-8632 or firstname.lastname@example.org.