Over the years, first-time homebuyers may have shied away from entering the housing market due to stagnant wages and debt, but times have changed. According to TD Bank’s First-Time Home Buyer Pulse, one in five consumers is actively looking to buy his or her first home. Additionally, 46% of millennials will be looking in the next 1-2 years. If you’re a first-time buyer, the mere thought of securing a mortgage may be overwhelming. For most people, a home is the largest purchase they’ll make. Very few can take on this purchase without a loan.
4 Tips for First-Time Home Buyers
1. Save for a down payment.
Most mortgage lenders require a cash down payment. Buyers today may find it difficult to save for a large down payment, especially young adults with substantial student loan debt. Historically, buyers who were unable to put 20% down had to pay an additional $100 – $200 per month for private mortgage insurance (PMI). The great news is many lenders are offering home affordability and down payment assistance programs. TD Bank offers the Right Step mortgage, which allows borrowers to put as little as 3% down.
2. Factor in home improvement costs & monthly household expenses.
With today’s low inventory of affordable homes for first-time buyers, many will find themselves settling on a home that requires renovations or upgrades. These costs should be factored in at the beginning so buyers are comfortable with their down payment and monthly payment. For buyers who have not lived on their own or rented, the added costs of running a household can be a shock. Monthly costs for utilities, homeowner’s association fees, cable, and Internet, can add up quickly. Factoring these expenses in at the beginning can help borrowers better assess their budget and a monthly mortgage payment.
3. Shop around for a mortgage.
We know the best mortgage experience for buyers occurs when they have open and ongoing communication with their lender. Finding a lender and discussing financial needs and budgeting should be the very first step in the home-buying process—even before finding a Realtor. The First-Time Home Buyer Pulse revealed saving for a down payment is a barrier to homeownership for many first-time buyers. That’s why it’s important to find a lender that helps buyers understand what they can afford and share what options are available. Mortgages are not one size fits all—to find the option that best fits their needs, buyers should discuss their financial situation with a lender they trust.
4. Get educated.
Perhaps the single most important aspect of purchasing a home is to understand the mortgage and overall home-financing process. Take advantage of educational courses offered by local financial institutions and government programs. In fact, TD Bank offers a First Time Home Buyer Seminar series that addresses all aspects of a home loan. This includes helping buyers decide if they’re truly ready to own a home. Following that, the seminars share information on the criteria lenders use to evaluate a borrower, the documentation, each portion of a mortgage payment, and the team that processes and approves the loan. These seminars are useful tools and provide valuable background for borrowers who are overwhelmed by the process. While buying a home may feel overwhelming for first-time buyers, finding a lender you can trust will guide you in the right direction.
