Buying a home is probably the largest financial investment most individuals will make in their lifetime, but the benefits usually outweigh the challenges. Asking the right questions and doing your homework prior to buying that first home is essential.
Here are answers to first-time home buyers’ most frequently asked questions:
1. Should I buy instead of rent?
The benefits of buying a house rather than renting a house or apartment include:
- Tax breaks
- Financial gains
- Appreciation in value
- Capital gains
- A sense of pride
2. Am I ready to buy
Ask yourself the following questions when considering whether you’re ready to buy:
- Do I have a steady job?
- Have I been steadily employed for the last two to three years?
- Is my current income reliable for the foreseeable future?
- Do I have a positive bill-paying history?
- Do I have few outstanding long-term debts, like car payments?
- Have I saved for a down payment?
- Can I afford to pay a mortgage, taxes, utilities, and insurance?
3. Does my credit score impact my ability to buy?
A credit score numerically summarizes an individual’s credit history and gives a snapshot of their financial standing to a lender. Mortgage lenders use the score to decide who receives loans and at what interest rate. The higher the score means the better the chance of getting a loan with an attractive interest rate.
If your score is low, it is not impossible to get a loan but it will take longer. Before applying for a loan, fix any errors you might see in order to improve your score and put your best foot forward with lenders.
4. How much do I need for a down payment?
Saving for the down payment is the greatest obstacle for first-time home buyers. Lenders expect between 10% for a deposit. It varies according to the lender’s requirements, and the type and length of the loan. Make a budget, set a goal, and stick with the plan. Saving and sacrificing is how most people come up with their first down payment.
5. What is the difference between pre-qualified and pre-approved?
Pre-qualification: Getting pre-qualified for a mortgage gives first-time home buyers an indication of how much they “might” qualify to borrow. This mortgage amount is not guaranteed because no information has yet been verified. A letter from the lender may only state that you are “likely” to be approved for a mortgage.
Pre-approved: Better yet is getting pre-approved for a mortgage, which is based on a real credit score, and it also puts real estate agents and home sellers at ease. The buyer has more to offer when making a deal and in a competitive market this can be a definite plus.