Top Finance Tips for First-Time HomebuyersJuly 13, 2020
Buying a new house can be a daunting experience. From getting prequalified, finding the right house, being approved, to coming up with the necessary funds, the whole experience can feel a bit overwhelming. Have no fear – here are ELFI’s top tips for first-time homebuyers to overcome the challenge.
Make a Budget
Deciding on a budget before you start shopping will help you choose a home you love that falls within your price range. In building a budget, be sure to consider your total income, as well as necessary expenses like utilities, food, and gas you’ll incur each month in addition to housing costs. As a rule of thumb, you should aim to keep the cost of your mortgage below 25% of your take-home pay.
Maintaining a budget is a great way to continue to meet other financial goals, like paying down student loans, saving for a car, or building an emergency fund, while searching for your dream home. If you’re not sure where to start, SouthEast Bank’s fixed and adjustable-rate mortgage calculators can help you determine your initial budget and launch a successful house hunt!
Here’s an extra tip. Don’t forget to include closing costs in your final total! Many first-time homebuyers make this mistake and find themselves over-budget at the end of the transaction. Average closing costs fall between 2-5% of the total cost of the home. In some situations, the seller may agree to cover the closing costs, so be sure to consider including that in your home offer as well.
Boost Your Credit Score
When you’re considering buying a home, give yourself every advantage by keeping your credit score in great shape. If your credit could use a little extra help, try these tips to polish your score:
- Make bill payments on time. Late payments are a credit score’s worst enemy, as payment history is the most heavily weighted category in determining your score. Set reminders in your phone, leave yourself sticky notes, and do whatever it takes to get those payments submitted by their deadlines!
- Slow down the spending. Hitting your credit limit can also damage your score, so be careful to use different forms of payment, like cash or debit, or cut down on unnecessary spending.
- Don’t close that card. Closing lines of credit can be damaging to your score, even if they’re linked to cards you rarely or never use. Instead, put your card in a safe place and use it for occasional transactions, or set it up on autopay for a small monthly expense. If you do need to cancel the card, take these steps from U.S. News to avoid significantly dropping your credit score.
If you found this advice helpful and you’d like to take a deeper dive into your credit score, check out ELFI’s blog, “How to Build Credit: A Beginner’s Guide.”
Understand Your Mortgage
Buying a house is a big decision, but understanding your mortgage will give you the confidence to take the next steps in finding your perfect home! Here are a few ways to determine which mortgage loan is right for you:
- Choose a mortgage term that fits your budget. Mortgages generally have terms of 15, 20, or 30 years, meaning the length of time it takes to repay them.
- If your goal is to keep your monthly payment low, then opt for a longer-term loan, which will allow you to make smaller payments over time. While long-term loans are great for lowering your monthly payment, however, they increase the number of total payments and result in more interest than short-term mortgages.
- On the reverse side, short-term mortgages have higher monthly payments but less total interest. Either way, the important decision is choosing the term that allows you to remain within your budget and keep your financial goals on track!
- Find the right mortgage lender. All too often, first-time homebuyers make the mistake of stopping their mortgage search after being approved by one lender. Instead, take the time to reach out to multiple lenders and determine who can offer the best rate. By being selective, you could save thousands of dollars over the life of your loan.
- Get preapproved by your top lenders. After you’ve decided which lenders you’re most interested in working with, show sellers you’re serious by getting preapproved for a loan. A preapproval letter shows that a lender has researched your credit and financial history and determined they’d be willing to offer you a mortgage loan.
- When you’re researching lenders, it’s smart to submit all preapproval applications within 30 days to avoid hurting your credit score.
Choose the Right Insurance
Once you’ve built your budget, boosted your score, and finished your mortgage research, it’s time to close on your dream home!
As part of the closing process, you’ll be required to purchase homeowners insurance. Like mortgage lenders, several companies offer homeowners insurance with different rates and benefits. Take the time to research which insurance plan is right for you to ensure you’re receiving the best protection.
If you could use some expert help, reach out to SouthEast Insurance Services1. Their experienced representatives can compare rates from more than 40 major lenders to be sure you’re getting the most for your money. Visit them here to learn more to receive a complimentary, no-obligation quote.
Congratulations! You’ve done your research and found a dream home within your budget. With our first-time house hunter tips, you’ve also built your credit and received competitive rates on your mortgage and insurance. Now, it’s time to enjoy the home you’ve worked so hard for.
At ELFI, we’re proud to support your financial goals and are here to help you along every step of the way. Check back soon for new blog posts, and happy house hunting!
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1SouthEast Insurance Services Products
- are not a deposit
- are not FDIC-insured
- are not insured by any federal government agency
- are not guaranteed by the bank
- may go down in value
Insurance products are not insured by FDIC or any Federal Government Agency; are not a deposit of, or guaranteed by the Bank or any Bank Affiliate; and may lose value. Any insurance required as a condition of the extension of credit by SouthEast Bank need not be purchased from our Agency but may, without affecting the approval of the application for an extension of credit, be purchased from an agent or insurance company of the customer’s choice.