The McLellan Team understands that a home purchase is not only a big commitment but also a great opportunity. Owning your own home means you can paint the walls any color you like, plant flowers and vegetables in the garden—and plant seeds for your future, too.
A mortgage is likely one of the biggest financial commitments you will ever make, so taking out your first mortgage requires careful consideration. Many budding new homeowners find the mortgage process stressful since the options available to you depend on several factors, including your income, credit score, and any past or present loans.
From start to finish, the key to a successful home-buying experience is getting the details right. This is why we have compiled a list of essential tips that will help first-time homebuyers navigate the confusing process, all while saving money and closing the deal.
Tips For Taking Out Your First Mortgage
Tips for Preparing to Buy Your First Home
1. Start Saving
Here are the main costs to consider when saving for a home:
Downpayment/Deposit: You will almost always be required to put down a substantial amount when purchasing a home. Those with higher deposits can benefit from better interest rates and a wider range of borrowing options.
Depending on the type of loan you go for, first-time homebuyers with excellent credit could get a conventional loan for as little as 3% down. But, for many first-time homebuyers, even a small down payment can be challenging to save for. Start with calculating your down payment goal and then set up automatic transfers from checking to savings to get started.
Closing Costs: These are the fees and expenses you pay to finalize your mortgage, and they typically range between 2% and 5% of the loan amount. You can negotiate to have the seller pay a portion of your closing costs, and you can shop around to save on some expenses, such as home inspections.
Move-In Expenses: If your home isn't turnkey, you'll probably need some cash after the purchase. Save money for immediate home repairs, upgrades, and furnishings. Remember that not all repairs and upgrades are obvious, so it’s a good idea to have some money set aside for any unexpected issues.
Additional Costs: These could include home inspections and real estate fees.
2. Don’t Borrow Too Much
Before shopping for a house, find out how much you can comfortably spend. Just because your lender tells you that you can borrow up to $300,000 doesn’t mean you should! A maxed-out loan may not be manageable on a monthly basis, especially if your financial situation changes. Typically, prospective homeowners can afford a loan amount that is 2 to 2.5 times their gross annual income.
3. Check Your Credit Score
One of the first things a potential lender will examine when considering your application is your credit score. Having a bad or neutral credit score will limit your borrowing options or even eliminate them altogether, so it makes sense to work on improving it before buying a home.
4. Don’t Quit Your Job
Since potential lenders are likely to reject applicants who have recently changed jobs, it's best to apply for a mortgage only when you have worked in the same position for at least six months. If you are unemployed or still on your probationary period in your job, most lenders will not accept your application unless you have an excellent credit score—and even that is touch and go. Once your application is accepted, however, you can do whatever you need to.
Tips for Selecting Your First Mortgage
1. Learn About Your Mortgage Options
Buying a home in California involves a lot of research! We suggest starting with researching mortgage financing.
It's up to you whether you want a government-insured mortgage like an FHA loan, or a conventional loan not backed by the government. Both options have pros and cons:
● With FHA loans, you can put down as little as 3.5%, and they usually have more flexible qualification criteria.
● A conventional loan usually requires a down payment of 5%. Homebuyers who put 20% down or more avoid having to pay mortgage insurance.
● Veterans and first-time buyers in California who are in the military can take advantage of the VA loan program.
2. Check Out First-Time Home Buyer Assistance Programs
In California, first-time homebuyers can take advantage of many mortgage assistance programs, depending on where they live. These often combine low-interest rates with down payment assistance and closing cost assistance. Some first-time homebuyer programs also offer tax credits.
3. Get a Preapproval Letter
Mortgage pre-approvals are offers of a specific loan amount and terms. Home sellers and real estate agents see a preapproval letter as evidence that you're a serious buyer, and it gives you an edge over other home shoppers.
4. Contact a Mortgage Broker
Mortgage brokers specialize in locating funding for mortgages. They know where to find the best rates. They also possess the necessary knowledge to present a proposal for financing to lenders in the best possible way to obtain mortgage financing.
The McLellan Team has experts devoted specifically to first-time homebuyers who can guide you through any speed bumps and pitfalls you may encounter throughout the entire funding process.
Tips For First-Time Home Shopping
1. Choose a Real Estate Agent Who Knows the Area
A good real estate agent will search the market for properties that meet your needs and guide you through the negotiations and closing process. Inquire about potential agents' experience helping first-time homebuyers and how they plan to assist you.
2. Be Picky, But Prepare for Compromise
Housing inventory is low in many real estate markets in California. There are not enough homes for sale to meet current demand. This means that first-time buyers must be prepared for competition.
When buying a home in such a market, it is important to be flexible and open-minded. In a constrained market with limited supply, you might not find a house that checks all the boxes on your wishlist. Location, size, etc., may have to be compromised. These days, compromise is a very common phase for first-time homebuyers in California.
And don’t forget to be confident when you submit your offer! Never submit an offer on a home unless you’re 100% committed to the purchase.
First-time Home Buyer? Explore Your Options With the McLellan Team
Buying a home for the first time doesn’t have to be overwhelming. Wherever you land, it’s you and your loved ones who bring a home to life.