7 Important Tips for First Time Homebuyers

July 19, 2023

Making the switch from being a renter to being a homeowner is exciting! The process can be trickier than anticipated for first time homebuyers. Here are some tips to help you prepare, so you can look forward to a new life in your new home!

What Are Some Good Tips When Buying A Home?

Buying a home today is a different experience than it was even two years ago. There are fewer entry-level homes on the market due to high demand and rising interest rates have made getting a mortgage challenging. If you're ready to make the (very smart) leap into homeownership, there are a few things you can do to make sure you're ready when you find that perfect space. 

  • Know What You Want & Understand Your Priorities. When you're considering homes, think about what would make your life better today, rather than try to guess what your priorities will be in the future. If your quality of life would improve by being close to your job, living in a walkable neighborhood, or being close to restaurants and shops, make those the priorities that guide your home search. In a few years or so, as you reconsider your life circumstances, you can look for a home that better fits your lifestyle at that time.
  • Get Pre-Approved. If you know what you’d like your monthly payments to be, but need an idea of what your total investment might be, take the very first step and speak with a preferred lender. They will give you a breakdown of home prices within your budget, down payment and loan options, and monthly costs. Go one step further and get pre-approved. Your lender will gather important financial documents and produce a letter stating the loan amount that you qualify for. This is helpful if you need to make an offer on your dream home quickly.
  • Maintain & Improve Your Credit. Lenders will pull your credit report when you apply for mortgage preapproval, and again before you close. If they find that you’ve taken out another loan or line of credit, that your credit balance has increased, or that you’ve started to make late payments, your final approval could be at risk. During this time, lenders need to see that your behavior patterns are consistent and reliable for future payments. So keep paying your bills on time - and don’t begin any risky spending ventures. 

  • Understand Your Loan Options. Conventional loans, FHA loans, USDA loans, VA loans - each type of loan has qualification standards that you must meet. Make sure you know and meet these standards before applying. Choosing the type of mortgage that fits your financial needs will require a bit of research. Getting pre-approved will help you understand the types of loans available to you, and see the pros/cons of each mortgage option based on your financial situation. (See more info about loan types below!) 
  • Keep Closing Costs in Mind. First-time homebuyers need to account for up-front expenses such as closing costs. Closing costs cover things like attorney fees, appraisal fees, and title insurance. The total amount (usually between 3-5% of the loan amount) is due in full at closing. Set aside cash for these needs to avoid unpleasant surprises at closing. As a first-time buyer, you may also qualify for government-backed grants or loans that assist with closing costs
  • Work With A Real Estate Agent. Working with a real estate agent can help you expedite the home shopping process. Experienced real estate agents bring special expertise to the search for homes that fit your criteria. This translates to less wasted time across the board. When you’re ready, they also work to get your paperwork processed and your offer submitted. 
  • Keep An Open Mind While Shopping for Homes. Focus on your needs first, then your wants. For example, you may need home office space because you work remotely. Or you may need to live close to your office so you don't have a long commute. Find something that checks MOST of your boxes. To get more of what you want, new construction is a great choice because you can give input on the layout and design of the home.

20 Terms To Know When Financing A Home

Financing a home can be a very intimidating process, especially if you've never done it before. Knowing what financial terms mean can help make the process less overwhelming, and ensure that there are no misunderstandings. Here are a few of the most common financial terms every homebuyer should know:  

  1. Adjustable Rate Mortgage: A mortgage that offers a lower initial rate and lower payments, but adjusts and fluctuates along with interest rates at prescribed times and sometimes with prescribed limits for the life of the loan. Known as an ARM. 
  2. Annual Percentage Rate (APR): The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage. Unlike an interest rate, it includes other charges or fees (such as mortgage insurance, closing costs, discount points) to reflect the total cost of the loan.
  3. Appraisal: An estimate of real estate value, usually issued to the standards of the lender. Recent comparable sales in the neighborhood are the most important factor in determining value.
  4. Closing Costs: Costs involved with the closing. May include down payment, title fees, appraisal fees, attorney fees, inspection fees, and points bought to buy down interest rate. 
  5. Closing/Settlement/Escrow: The closing process with all of the parties in the real estate transaction. At closing, you sign all of the paperwork required to complete the purchase, including loan documents. 
  6. Conventional Loan: A loan neither insured by the FHA (Federal Housing Administration) nor guaranteed by the VA (Veterans Affairs).
  7. Cost Calculations: The financial calculations involved in buying a home, such as down payment, purchase price, closing costs, HOA fees, taxes, insurance, utilities, maintenance. 
  8. Credit Report: A record of an individual’s debts and payment habits. It helps a lender determine whether or not a potential borrower is a good business risk. The 3 major credit bureaus that provide credit reports are Equifax, Experian and TransUnion. 
  9. Credit Score: (aka FICO) A number that rates the quality of an individual’s credit. It helps predict the relative likelihood that a person will repay a credit obligation. In general, the higher your credit score, the more likely you are to be approved for and to pay a lower interest rate on a loan. 
  10. Down Payment: The amount of cash paid toward the purchase of a home to make up the difference between the purchase price and the mortgage. The amount may range between 5% and 20% of the sales price depending on many factors, including the loan, the lender, and your credit history.
  11. Earnest Money Deposit: A check written to a seller when an offer is made on a home. Most earnest money deposits are equal to 1–3% of the home’s value. If the seller accepts the offer, the earnest money deposit goes toward the down payment at closing.
  12. Equity: The difference between the market value of a property and the owner's indebtedness (i.e. mortgage).
  13. Escrow Payment: The portion of a borrower’s monthly payment held in trust by the lender to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due; known as impounds in some states.
  14. Fee Simple: Clear and absolute ownership of a piece of property. The fee simple owner of a property has the right to use the land in any way desired: build on it, sell it or lease it.
  15. FHA Loan: Loan insured by the Federal Housing Administration. If the buyer fails to repay the loan, the federal government pays the lender for any losses. Because of the government’s insurance, lenders require a lower down payment than they would with a conventional loan. 
  16. Fixed Rate: A mortgage where the interest rate is locked in and cannot go up over the term of the loan. Protects the buyer from increasing payments. Comes in 10, 15, 20 and 30-year options. 
  17. Pre-Approval: One of the first things a buyer needs to have when beginning the house hunt. Talk to a mortgage professional or two about getting your finances in order and getting pre-approved for a loan. 
  18. Private Mortgage Insurance/PMI: Insurance written by a private company to protect the mortgage lender against loss occasioned by a mortgage default. Required if the buyer does not put down 20 percent on a home. 
  19. Title Insurance: An insurance policy that protects the insured (purchaser or lender) against loss arising from defects in title.
  20. VA Loan: A VA loan is a low or zero-down payment mortgage option offered to eligible veterans and active duty service members and their families. VA loans are partially backed by the Department of Veterans Affairs (VA) and are issued by private lenders. The down payment required is usually 1-3% of the total loan amount, and the interest rates are generally lower relative to conventional loans. 

Contact Cothran Homes Today!

There are so many positive benefits that come with buying your first home. If you’re looking for a home with modern floor plans, exceptional craftsmanship, and great value, look no further than a new Cothran home in Greenville. We’ve helped so many first time homeowners find their perfect home, and we can help you too! Take a moment to browse our homes and let us know when you find one you love or if you have any questions about how to buy a home.

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