Hints for Homebuyers

Buying a home can be daunting, but these tips from First Community Bank could help calm your concerns.

Ahead of the game icon.

Get ahead of the game.

You’ll be better prepared for a bidding skirmish if you’re pre-qualification for a loan.

Credit Score Meter

Clean up credit.

Pay down debt, and address credit flaws as soon as possible.

Understanding Your Credit Score

Wallet with bills coming out of the top.

Shore up savings. 

Beat the 6-7% average down payment of most first-time homebuyers, and you’ll likely build equity faster, cut payments and reduce the need for private mortgage insurance.

Home and apartment building icon.

Know your market.

Enter your search with realistic expectations. Research what comparable homes have sold for in your area over the last 6 months.

Calculator and paper with dollar sign.

Set a reasonable budget and stick to it.

Consider what you need in a home you’d love and where you might cut costs or make some changes.

Budget Calculator

More helpful tips and FAQs

1. Ensure Your Commitment to a Mortgage

For first-time homebuyers, a critical consideration is refraining from premature home purchases. As a first-time buyer, it's imperative to assess your readiness for such a significant commitment. While mortgage terms often extend over 15 or 30 years, even if you don't anticipate staying in your home for that duration, buying a house remains a substantial commitment.

Begin by addressing key questions:
- Am I prepared to commit to this home and city for at least 5 years?
- Do I possess an emergency fund capable of covering at least 3 months of expenses?
- Is my income stable?

Should any of these questions yield a "no" response, delaying the home purchase may be prudent. Additionally, consider any upcoming events that might impact your location, income, or expenses, as these could be reasons to exercise caution.

2. Emphasize Mortgage Preapproval

Resist the temptation to dive headfirst into house hunting, especially if you're a first-time buyer or in a hurry to leave your current living situation. Prioritize obtaining a mortgage preapproval before embarking on property comparisons.

Distinguish between prequalification and preapproval:
- Prequalification letter: An estimate based on an informal assessment of your income and other information.
- Preapproval letter: An official document from a lender detailing the precise loan amount you qualify for based on financial data like W-2s, bank statements, and credit score.

Benefits of preapproval include:
- Clear understanding of your affordable home range, facilitating budget-conscious shopping.
- Enhanced offer strength, reassuring sellers of your financial capacity to purchase the home.
- Reduced likelihood of last-minute surprises or delays in the mortgage approval process.

3. Safeguard Your Credit

Avoid opening new lines of credit, such as credit cards or personal loans, as you approach the homebuying process. When seeking mortgage preapproval, lenders scrutinize your credit report, and any new debt or adverse credit changes can jeopardize final approval.

Maintain timely bill payments and refrain from actions that may influence your credit rating, whether positively or negatively. Consistency and reliability in financial behavior are key factors lenders look for.

4. Grasp Your Loan Options

Understanding the variety of mortgage loans available empowers you to make informed choices based on your needs. Consider some common types:
- Conventional loans: Common and flexible, often requiring as little as a 3% down payment.
- FHA loans: Suitable for those with less strict financial and credit score criteria, offering a 3.5% down payment option with a credit score as low as 580.
- USDA loans: Designed for rural or suburban homebuyers, offering a 0% down payment option, subject to income restrictions.
- VA loans: Exclusively for veterans, active-duty military, National Guard members, and eligible spouses, allowing for a 0% down payment.

Once you've identified your goal, establishing automatic savings account payments can facilitate down payment savings, providing a clearer timeline for your move.

Home closing costs refer to the various fees and expenses that homebuyers and sellers incur in the process of completing a real estate transaction. The specific costs can vary depending on factors like location, the purchase price of the home, and the terms of the mortgage, among others. Here is a general list of items that may be included in home closing costs:

  1. Loan-related Costs:
    • Loan origination fee
    • Application fee
    • Appraisal fee
    • Credit report fee
    • Points (optional, representing interest paid in advance)
  2. Title and Escrow Fees:
    • Title insurance (both lender's and owner's policies)
    • Title search and examination fees
    • Escrow or closing agent fees
  3. Government Fees:
    • Recording fees
    • Transfer taxes
    • Property taxes (prorated between buyer and seller)
  4. Prepaid Expenses:
    • Prepaid interest
    • Homeowners insurance premiums
    • Property taxes (prepaid portion for the upcoming year)
  5. Homeowners Association (HOA) Fees:
    • Transfer fees
    • Dues or assessments (if applicable)
  6. Home Inspection and Survey Fees:
    • Home inspection fee
    • Survey fee
  7. Attorney Fees:
    • Legal fees for document preparation and review
  8. Miscellaneous Costs:
    • Pest inspection
    • Courier fees
    • Notary fees

It's important to note that the specific closing costs can vary by location, and some costs may be negotiated between the buyer and the seller. Additionally, the buyer typically pays most of the closing costs, but this can be influenced by local customs, the real estate market, and the terms of the purchase agreement.

To get a more accurate estimate of your closing costs, it's advisable to request a Loan Estimate (LE) from your lender, which provides a detailed breakdown of the expected closing costs associated with your mortgage.

A home appraisal is an assessment of the fair market value of a property. This can be helpful to both the sellers and buyers of a property to ensure both parties get fair value for their sale/purchase. 

Typically, an appraisal is paid for by the buying party and is included on the loan estimate as apart of the closing costs. 

First-Time Homeowners, Refinance, Or Leverage the Equity in your Home

  1. Check your credit report: The first thing lenders will do when you apply for a mortgage loan is to check your credit. You should do the same to ensure that your credit report is accurate and up to date. 

  1. Get things in order: Once you have been keeping regular tabs on your credit report, you will be able to see how you are doing. If your debt-to-credit ratio is too high, monitoring your score over time will show you how your score might change. 

  1. Do your homework: Research loans, rates, and brokers exhaustively before you sign or commit to anything. 

  1. Be realistic about what you can afford: Home ownership may be the American dream, but keep one foot on the ground, too.

  1. Understand how lenders operate: Your credit score, on which lenders base much of their decision about your loan amounts and rates, is a reflection of their confidence in your ability to repay them. 

  1. Decide how you’ll finance it: Once you research the types of financing available, determine which is best for your financial situation when buying a home: 15-year mortgage or 30, adjustable or fixed. If you are looking for security and a guarantee that payments won’t increase, a fixed rate mortgage might be the way to go.

  1. The larger your down payment, the wider your options: So, within a realistic framework of what you can afford, the more you put down, the better your terms. The days of zero down payments, especially on a mortgage, seem to be winding down. 

  1. Get pre-approved: Mortgage pre-approval is an examination of a home buyer’s finances and lenders require five items to ensure borrowers will repay their loan. 
  • Private Mortgage Insurance (PMI) is a requirement from lenders for borrowers with a conventional loan and a down payment of less than 20% of the home's purchase price. This insurance safeguards the lender in the event of borrower default.
  • When the down payment is below 20%, lenders perceive a higher risk, and PMI offers insurance coverage to mitigate that risk. Notably, PMI doesn't shield the borrower but rather ensures compensation for the lender if the borrower fails to repay the loan.
  • It's crucial for homebuyers to grasp the terms and conditions of PMI, understanding its impact on overall mortgage costs, especially when considering a home purchase with a down payment below 20%.
Home Budget Calculator - Enter your income and monthly expenditures to see how much you have left to save. 

Mortgage APR Calculator - Determine the amount of interest on your total mortgage loan amount that you'll pay annually (averaged over the full term of the loan).
Mortgage Loan Calculator - Determine your monthly payment and generate an estimated amortization schedule (how much you'll pay in principal and interest). Quickly see how much interest you could pay and your estimated principal balances.