No matter where you plan to buy your first home, whether it's among the real estate in Toronto or a small town in the Midwest, as this is probably one of the biggest financial investments you'll make in your lifetime, you'll want to take advantage of all the possible ways to save. The minimum down payment for a $250,000, according to SmartAsset, is $8,750. However, depending on your particular financial situation, it could be as much as $50,000. The down payment isn't all you'll need. There are also closing costs. This can range from 2 to 3.5 percent of the total cost of your home purchase. Plus, there are home inspections, property taxes, home insurance, and moving expenses.
These budget tips can help you make the first home purchase more affordable and perhaps allow you to move in sooner too.
Increase Your Credit Score Before Making a Home Purchase
The better your credit score, the better deal you're going to get on your mortgage. This includes a lower interest rate, which means the total you'll pay over the life of the loan can be significantly less.
One of the first steps you should take is to increase that score if it isn't already where it needs to be. For a conventional loan, it should be at least 740. If you aren't close to that, another option is to get an FHA mortgage. They have no added fees for a lower score, with good rates possible for scores of around 600+.
The quickest way to improve your FICO score is to pay down debt. And, don't close accounts as that will negatively impact your score by affecting your utilization ratio.
Aim to keep balances at 15% or less of your credit limits and don't apply for any new credit as hard inquiries can also lower your score.
Ideally, you should pay off all your debt first and save for an emergency fund that will cover three to six months of all your monthly expenses to prevent potential financial disaster. It will also make you look better in the eyes of the bank or another mortgage lender when applying.
Pay 20 Percent Down on Your Home Purchase
While you're likely to find options for as little as 5 percent down, 20 percent down is better. It'll help you save a lot over the life of the loan. That's because you won't be required to pay PMI or private mortgage insurance.
PMI can add thousands of dollars to a 30-year mortgage loan.
Get Preapproved for a Loan
Once your credit score is where it needs to be, and you have enough money saved for a down payment, closing costs, and potential emergencies, get preapproved for a loan. This will show sellers and real estate agents that you're a serious buyer. This means when you make an offer, it's more likely to be accepted.
The lender will need to verify your financial information, such as proof of income, credit, etc. However, once you're preapproved, you won't have to worry about being disappointed when you find that ideal home that's priced according to the loan amount you're qualified for.
Hire an Experienced Buyers' Agent
Having a buyers' agent won't cost you anything as the seller pays the commission. Plus, it's likely to save you at least some money. A good realtor will be representing you to help negotiate items in the contract that can add up to significant savings.
Get referrals from friends, family members, or co-workers and then interview the agent to check for personality fit and experience in the city and neighborhoods you plan to shop in.