Find Your Starter
If financing your first home seems a daunting undertaking, never fear. With good guidance, you can afford the place of your dreams.
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If you’re like most people, you’ll shop for a house with your head, measuring rooms, calculating prices and property taxes, finding just the right neighborhood. But you’ll buy with your heart. So before you start home hunting, do a little research to make sure the house you fall for fits your needs without toppling your budget.
To determine how much you can afford, have a lender pre-approve you for a mortgage. Based on your credit score, income and assets, this pre-approval process is usually available at no cost and can take as little as a day to complete if you have all of your documentation, says John Thomas, Delaware-based mortgage and finance professional with Primary Residential Mortgage.
Pre-approval can also help you negotiate the best price for a home because it assures the seller that your loan will go through and that it will do so quickly, Thomas notes. Many sellers will reduce their prices for pre-approved buyers.
The first thing you’ll need to provide to the lender is your FICO credit score from the three reporting bureaus, Experian, Equifax and TransUnion.
Scores range from 300 to 800. Higher scores usually qualify for lower interest rates, which can save thousands of dollars in financing fees over the life of the loan. You can get a free annual credit report from annualcreditreport.com, but this will give you an overview of your credit standing that will not include your actual FICO score. You can get your reports and scores from all three credit bureaus from myfico.com for less than $50.
Keep in mind that a healthy credit score is only one of the factors that should determine how much you spend, says Beverly Ward, director of home ownership services at the Delaware YWCA in Newark.
“In addition to the principal, you should also figure in the interest, property taxes and costs of homeowners insurance, mortgage insurance, any homeowner association fees, regular seasonal maintenance expenses and other unanticipated expenses,” she Ward says. “For example, if your water heater breaks, you should have enough of a cushion to be able to afford to replace it.”
Once you have a budget in place, decide what features of a home are most important to you. Have a list of your priorities, says Jacqueline Roark of Long & Foster Realtors for New Castle and Kent Counties, including whether you want a one- or two-story home with or without a basement, how many bedrooms and baths, family room or gourmet kitchen.
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