According to Genworth Mortgage Insurance’s First-Time Homebuyer Market Report, 2.38 million Americans became first-time homeowners in 2020 – a 14 percent increase from the year before. This number is expected to continue its rise in 2021, as more Americans capitalize on lower interest rates. This has already been evident in preliminary figures showing that American homeownership has risen that year. However, even with the drop in interest and mortgage rates, affording your first home remains a significant financial undertaking. From securing the best mortgage deal to budgeting for the entire home buying process like the cost of homeowners insurance, buying your first home can be a learning curve financially. The best way to prepare financially? By thinking ahead and adopting financial strategies like these.
Work On Building Your Credit Well Ahead Of Your Mortgage Application
By now, everyone knows that their credit score is important when buying a home. The better your credit score is, the higher chance you have of getting a better mortgage deal. A better mortgage deal means you can benefit from lower interest rates, reduced monthly mortgage payments, and lowered overall costs of owning a home. This also frees up more money in your monthly budget for other things like renovating your new home.
The best place to start when improving your credit score is to have a look at your credit report. This can help you spot any inaccuracies or areas you need to work on. The good news is that everyone can request an annual credit report. In the lead-up to your mortgage application, it is also wise to work on reducing your debt and credit utilization. Ideally, your credit utilization should be below 30 percent. Working with mortgage brokers for a pre-application check and calculation can also help you have a rough idea of the mortgage deal you may be offered based on your downpayment and credit history. It also helps if you take the time to understand what goes into our credit score- 35 percent of it is determined by your payment history while 30 percent is impacted by your credit utilization.
Prioritize First Time Homebuying Programs And Grants
Recent reports show that the home prices in 50 of the largest U.S. cities present formidable challenges to first-time buyers. First-time homebuyers are already facing battles when trying to get on the property ladder like lower incomes and shorter credit histories. There is also the rising home prices to contend with, which means you need a larger downpayment.
To make homeownership a reality, first-time homebuyer programs can help. If you have a lower credit score or small downpayment, the Federal Housing Administration (FHA) Loan program allows you to buy a home with as little as 3.5 percent down and a credit score of 580. Military members can also benefit from the VA Home Loan program which allows you to buy a home with 0 percent downpayment. Your local state may also offer homebuying grants for first-time homebuyers like closing cost assistance.
Avoid The Temptation To Max Out Your Homebuying Budget
Buying a home can come with unforeseen costs. In addition to your mortgage costs, there are additional home buying closing costs, homeowners insurance, moving costs, and even legal fees. Also, if you have a deposit of less than 10 percent, you can expect to pay Private Mortgage Insurance (PMI) unless you are exempted. While you may be pre-approved for a mortgage of up to $350,000 or even more, avoid making that your criteria when searching for your home. The same concept goes for your savings and deposit. When saving up for a downpayment, budget for a buffer to cover additional home-buying costs that a mortgage may not cover like the cost of furnishing your new home. You also want to avoid maxing out your affordability.
Finally, don’t rush the process. Buying a home is a huge financial commitment and it is worth taking the time to ensure you- and your finances- are ready for all that comes with the homeowning process.