Tips for First-Time Home Buyers
Writer Amanda Gengler, who covers real estate for Money magazine, advises home buyers to give themselves at least six months to review their credit scores and finances before scheduling any showings. This wide berth gives home buyers time to clean up their credit and address problems.
"Often, people are looking at their credit reports for the first time," she says. "If you find any errors or inaccurate information, you don't want to apply for a loan until that error is no longer reflected on your report."
Those with higher credit scores traditionally have qualified for lower interest rates on their mortgages, though Amanda points out that those with average scores are having a difficult time securing those low rates in the current climate.
"People used to get the best interest rates with a credit score of 680," Amanda says. "Now, [banks] want people to have a score of 720 or 740 at least if they're going to get the better rate."
What to do:
- Visit MyFico.com and pull your credit history and score. Review the reports for any inconsistencies. If you have a mistake to dispute, contact Equifax, Transunion and Experian, the three national credit reporting agencies.
- Review your credit card debt and make a plan for paying it off.
- Review your savings. Do you have enough money for a down payment? Some lenders are requiring buyers to put down 20 percent of the purchase price and to show proof of funds before the closing date. Make sure you've also accounted for closing costs, which can run upward of $6,500 in addition to the down payment.
- Make sure you have enough left over in savings for any unexpected expenses or emergencies.
Though Amanda says the Federal Housing Administration (FHA) is financing the majority of first-time home purchases with federally backed loans that require buyers to put down only 3.5 percent of the purchase price, you should be prepared to do battle with fellow buyers.
"People who think they can take their time and negotiate price in the [lower-priced] housing market are coming up against multiple offers on a house," Amanda says. "You might want to be prepared to put down even 30 percent. We're seeing people with FHA financing having trouble getting their bids accepted."
Step 2: Can You Afford to Buy?