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Buying your first home can seem intimidating, and first-timers expectedly have plenty of questions about this sizeable investment — likely one of the largest and most important ones many people will make in their lifetime. Use this list of home buying tips as a guide before buying your first home.
1. BUY vs. RENT
DO: The math. When you buy a home and stay in it long enough, you’ll build equity that you can tap into in certain situations. If you rent, you will make monthly payments and build no equity. Rent can increase over time, but if you have a fixed rate mortgage, your payments will remain the same (but taxes and insurance premiums could change).
2. TYPES OF MORTGAGES
DO: Understand your options. From adjustable rates to fixed rates, from 15-year to 30-year mortgages, there’s a lot to digest. Talk to a mortgage professional, do your homework, and weigh the following:
- Do you plan to live in your house for a while, or just a few years?
- Are you interested in lower monthly payments, or paying your loan off quickly?
3. DOWN PAYMENTS
DO: Plan to put some money down. You might be able to qualify for a mortgage that only requires a small down payment, but a lender might then require you to pay for private mortgage insurance to mitigate the risk of you potentially defaulting on your loan. PMI can be expensive, and even if you can afford it, a good rule of thumb is to make a payment of 20% or more. Use Mr. Cooper’s mortgage calculators to help estimate.
DO: Consider whether you’re ready to buy. Although each person’s situation is unique, you might be ready to buy a home if:
- You can afford to make the monthly mortgage payments
- You have saved for a down payment
- You have a healthy credit score
- You have a steady job
- You have been paying your bills on time
- You have been managing your debts
5. ACTING NOW
DO: Consider talking to your mortgage lender and getting Pre-Approved. If you are Pre-Approved for a mortgage, it will give you an idea of how much you “might qualify to borrow. Remember that mortgage amounts and interest rates aren’t guaranteed with a Pre-Approval, but more of an estimate.