First-Time Homebuyer Tips
Published: October 2020
Author: Bank of England Mortgage Staff
Getting ready to buy your first home can be daunting. Credit scores, down payments, and mortgages are all on your mind. Here are some tips to help you get ready to make one of the biggest purchases of your life:
1. Start Saving Early
Here are the main costs to consider when saving for a home:
- Down payment: Your down payment requirement will depend on the type of mortgage you choose and the lender. Some conventional loans aimed at first-time home buyers with excellent credit allow as little as 3% down. But even a small down payment can be challenging to save. Even though there are some no and low down payment options, it’s best to be prepared.
- Closing costs: These are the fees and expenses you pay to finalize your mortgage, and they typically range from 2% to 5% of the loan amount. You can ask the seller to pay a portion of your closing costs, and you can save on some expenses, such as home inspections, by shopping around.
- Move-in expenses: You'll need some cash after the home purchase. Set some money aside for immediate home repairs, upgrades and furnishings.
2. Check and Strengthen Your Credit
Your credit score will determine whether you qualify for a mortgage and affect the interest rate lenders will offer. Take these steps to strengthen your credit score to buy a house:
- Get free copies of your credit reports from each of the three credit bureaus — Experian, Equifax and TransUnion — and dispute any errors that could hurt your score.
- Pay all your bills on time, and keep credit card balances as low as possible.
- Keep current credit cards open. Closing a card will increase the portion of available credit you use, which can lower your score.
- Track your credit score. NerdWallet offers a free credit score that updates weekly.
3. Get Pre-Approved!
A mortgage pre-approval is a lender's offer to loan you a certain amount under specific terms. Having a pre-approval letter shows home sellers and real estate agents that you're a serious buyer, and can give you an edge over home shoppers who haven’t taken this step yet.
Apply for pre-approval when you're ready to start home shopping. A lender will pull your credit and review documents to verify your income, assets and debt. Applying for pre-approval from more than one lender to shop rates shouldn't hurt your credit score as long as you apply for them within a limited time frame, such as 30 days.
4. Decide How Much Home You Can Afford
Figure out how much you can safely spend on a house before starting to shop. Bank of England Mortgage’s home affordability calculator can help with setting a price range based on your income, debt, down payment, credit score and where you plan to live.
5. Choose A Real Estate Agent Carefully
A good real estate agent will scour the market for homes that meet your needs and guide you through the negotiation and closing process. Get agent referrals from other recent home buyers. Interview at least a few agents, and request references. When speaking with potential agents, ask about their experience helping first-time home buyers in your market and how they plan to help you find a home.
6. Stick To Your Budget
A lender may offer to loan you more than what is comfortably affordable, or you may feel pressure to spend outside your comfort zone to beat another buyer’s offer. To avoid financial stress down the road, set a price range based on your budget, and then stick to it. Look at properties below your price limit to give some wiggle room for bidding in a competitive market.