Maybe you finally landed the job that allows you to have new financial freedom. Maybe you had to move and decided it was time to get out away from rentals and roommates.

Whatever the case, you are ready to be a homeowner, and that’s great news!

But, what do you do next? The thought of owning a home for the first time puts a smile on a lot of faces, but the process can be intimidating, overwhelming, and frustrating at times.

Don’t fret! Here are nine tips from Honor Credit Union to help you on your journey as a first-time home buyer:

Look at your credit

A low credit score may hurt your chances of getting the best interest rate, which in turn could affect how much you can spend. Honor Credit Union members have free access to their credit score in Online Banking. Another option is www.annualcreditreport.com, which gives you one free copy of your credit every 12 months. Knowing your credit score helps you evaluate whether you are ready to buy a home or if you need to do some things to improve your financial status.

Set a budget

Once you know your credit score you can start crunching some numbers to determine what you can afford. For an accurate figure, ask your lender to pre-approve you. At Honor, you have the option to do everything online, from checking our current rates, to using our calculators and using a printable checklist to make sure you have everything lined up.

One rule of thumb is to aim for a home that costs about two-and-a-half times your gross annual salary. Significant debt and expensive hobbies can affect that number. Another rule of thumb is that your home payment should not exceed 36 percent of your gross monthly income.

Budget a little extra

In all of your planning, don’t forget to take into account a down payment and closing costs. In general, lenders like to see 20 percent of the home’s price as a down payment. However, Honor Credit Union has plenty of options if 20 percent doesn’t work for you! After considering a down payment, don’t forget about closing costs. They could include the appraisal fee, loan fees, attorney fees, inspection fees and the cost of a title search. It can easily add up to more than $10,000.

If this money is hard to come by, you have options. Honor’s Mortage Loan Originators would be happy to help you with every step of the home-buying process!

Shop around

Like any big purchase you make, it’s important to shop around and do your homework. The first step is to figure out where you want to live. Consider the neighborhood, the town’s economic outlook, and the school district among other things. One rule of thumb is to not be too restrictive in your search. One suggestion is to look a little above and below your price range and just outside your target city.

One option to help with the search process is to use an exclusive buyer agent. You can sometimes find homes that fit your criteria faster by using an agent, but it’s important to keep in mind they are paid directly by you on an hourly or contracted fee.

Make an offer

And so begins maybe one of the most nail-biting steps of the process: Making an offer on a home. Try to get data on other recently sold houses in the same neighborhood when putting your offer together. If you are interested in the house, don’t try to lowball the seller because they may reject it and give up. Keep in mind; your leverage depends on the pace of the market. In a slow market you have muscle, and in a hot market you may have no advantage.

In the end, there is no perfect system for negotiating price. It’s best to find a price point that meets your and the seller’s needs. Be a little creative, like offer a little more but ask for the washer and dryer to be included.

Put a contract together

You have agreed on a price, and now it’s time to put it all on paper. Have a lawyer or your agent review the document to make sure the deal makes sense. The deal is contingent upon you obtaining a mortgage, a home inspection that shows no major problems, and a guarantee that you can conduct a walk-through inspection before closing.

It’s also a good idea to make a “good-faith” or earnest money deposit. It ranges from one to 10 percent of the purchase price and should be deposited into an escrow account. The seller will receive the money after the deal has been closed and if the deal falls through you will get the money back. This lets the seller know you are serious about the purchase.

Secure the loan

Call your mortgage broker or lender and agree on terms if you haven’t done so already. This is also the time to get an appraisal of the home and to look into a homeowner’s insurance policy as lenders typically require you to have one in place.

Get an inspection

After putting everything in place with your lender, you should hire a home inspector. However, Honor Credit Union reccomends doing the inspection before an appraisal is done or a deal is put in place. Ask to be present during the inspection because you will learn about your new home and its condition. If major problems are discovered you will have to negotiate with the seller to either fix the issues before moving forward or discuss a lower price. If both parties can’t come to an agreement, you can walk away from the agreement if that is written as a contingency in the contract.

Close the deal

A few days before the actual closing you will receive a final document from your lender that lists all charges you can expect to pay at closing. Make sure you read everything carefully to avoid any surprises. Some closing costs you will likely be responsible for:

Down payment: This is the biggest cost you will have to pay at closing.

Escrow: You may be required to prepay a certain amount of taxes and insurance costs so your lender can pay these bills when they’re due.
Homeowners association dues: Many homeowners associations require a year’s worth of dues when you move in.

Third-party fees: Appraisal, title insurance, closing fee, and courier fee are some things you may have to pay for at closing.

Need Help?

Are you feeling stressed out or overwhelmed by the home-buying process? One of our local home lending experts would be happy to help you unlock the front door of your first home!