When buying your first home, it helps to think about it as one large project with several moving parts. To have success throughout the process, you must plan, organize, and strategize your goals. If saving money is one of them, that intention should drive your strategy. You can accomplish this by focusing on helpful first-time homebuyer programs, as an example. But if speed is more critical, then organizing and filing any necessary paperwork is crucial.
Although buying a house as a first-time homeowner is an individual experience, everyone can follow a few essential steps. Regardless of your goals or priorities, the following five actions will help you start the process, prepare for paperwork, and save money.
#1 Start Saving Early When Buying Your First Home
At our online CPA firm, we stress the importance of starting early when buying a house, especially as a first-time homeowner. Purchasing a second home while selling your first can make a big purchase more manageable. But when starting from scratch, the earlier you begin saving, the better.
There are a few different strategies for saving money when buying your first home. Again, think of this step as a project and look at the smaller parts. There are three main expenses: down payment, closing costs, move-in expenses.
Down Payment (DP)
Your down payment cost will depend on the type of loan and mortgage you determine with your lender. Luckily, several first-time homebuyer programs can help you lower the percentage of your down payment. A past blog article explores these programs in each state. Some can bring your DP to as low as 3-5%.
To determine the final figure, use a down payment calculator or use the following formula:
DP% x Cost of Home = Down Payment
So if your DP is 5% and your home’s cost is $250,000, then your savings goal is $12,500. Many find it helpful to open up a savings account specifically for buying a house and establish automatic transfers. If you can save $1,000 per month, then you’ll afford your down payment in a little over one year.
Other First-Time Homebuyer Programs
Saving money when buying a house is often a big goal. While each state has several first-time homebuyer programs to support you (if you are, indeed, a first-time homeowner), others can help reduce costs. One is called the MCC tax credit program. Here at our CPA firm, we specialize in this program and help you save up to $2,000 per year.
The MCC tax credit is a federal program, but you’ll work with your state to determine how much you can save. For example, the MCC mortgage credit certificate in Texas is specific to those buying a house in that state. Here in Pennsylvania, you’ll adhere to the rules for our particular state.
If you want to benefit from these types of first-time homebuyer programs, then it’s essential to get started early. You must submit all paperwork before purchasing your new home. To learn more, you can read about the MCC tax credit on our website, and we can help you navigate the process.
But if you want to know the terms for your state right now, try a little search. In Texas, just search ‘MCC mortgage credit certificate Texas.’ Change the search terms for your state. 'MCC mortgage credit certificate New York,' 'MCC mortgage credit certificate Hawaii,' etc.
Closing costs are small fees or other expenses that you must pay when finalizing your home purchase. Most first-time homeowners should plan on 5% of their loan for closing costs. So, again, if the price of your future home is $250,000, you’ll need to save an additional $12,500. But there are some ways to lower this expense, the most common being negotiations with the seller or assistance programs.
Don’t forget this expense! After you purchase your home and pay closing costs, you’ll still need some money to physically move into your new home or address any issues such as home repairs or essential upgrades. Many first-time homeowners also need furnishings for their new house, such as beds, sofas, tables, chairs, etc. Factor these purchases and expenses into your savings goal.
#2 — Increase Your Credit Score
Another significant factor in determining your home’s cost (especially your down payment) is your credit score. You can quickly look at your credit online to see where your score falls. It’s best to search all three main credit bureaus: Experian, Equifax, and TransUnion.
Although your score with each will be similar, check for errors and dispute anything that harms your credit score. This is standard practice — don’t be scared to pick up the phone and ask questions. Staying on top of your credit is one of the best ways to increase your score.
Other things that can help you bolster your credit score when buying your first home:
#3 — Be Choosy and Shop Around
It’s tempting to react when you find your dream home, but if the market allows, be choosy and take your time. (Note: sometimes the housing market is competitive, and you must act swiftly once you find the home you want to buy.) If you have your heart set on a specific neighborhood, expand your parameters, and shop around.
The MCC tax credit program, as mentioned above, is an excellent example of why looking at other neighborhoods is helpful. Sometimes, governmental programs offer perks when buying your first home (or second) in specific areas. Maybe it’s an up-and-coming district that needs a housing boost. Perhaps it’s a neighborhood that the city wants to turn more residential, so it’s offering discounts to families willing to move. There are many reasons why a specific area may offer more affordable housing.
Ask yourself the following questions:
#4 — Open Houses are Your Best Friend
A lot of first-time homebuyers feel intimidated by open houses. When you’re in a room filled with others who might want the same place, all of a sudden, the process turns competitive. If you use these open houses to your advantage, then you’ll start to see the value in them.
Here are a few perks of open houses:
#5 — Secure Pre-Approval
Although pre-approval letters aren’t required, they show the right people that you are a serious first-time homebuyer. Mortgage pre-approvals are a lender’s offer of your future home loan. A letter like this shows real estate agents or private home sellers that you’re worth their time and investment because they know you have the funding.
Obtaining pre-approval can also give you an edge over your competitors. Not only do they know they can trust your finances, but they also label you as a responsible and trustworthy person. This reputation can also give you a little pull when it comes to negotiating. Yes, governmental programs like the MCC tax credit are helpful, but sometimes you can shave the most off an asking price by merely negotiating. Here are some things you can ask the seller to reduce:
As always, when the going gets tough… Give us a call or schedule a consultation online! You don’t have to navigate this process alone. We can help you maneuver the MCC tax credit process and find other resources as a first-time homeowner.