While buying your first home is a big decision, there are also lots of small decisions to make along the way. To help you navigate the process, we’ve gathered suggestions for avoiding some of the most common mistakes.
1. Know how much cash you'll need at closing. When you buy your home, you'll need cash for a down payment (see how much you should put down) and closing costs (estimate your closing costs). The down payment can vary, depending on the loan product, from 3% to 20% or more. Putting less than 20% down will typically require you to pay for private mortgage insurance (keep reading for more on that). Closing costs could be about 3-7% of the total loan amount and will include charges such as loan origination fees, title insurance and appraisal fees.
2. Budget for private mortgage insurance. For conventional financing, PMI is typically necessary if you don't make at least a 20% down payment when you buy your home. Make sure you know how much this cost will be and factor it into your monthly home payment budget.
3. Research your utilities. If you're moving into a larger home than you're used to, a home that is newer or older than you're used to or located in a climate that's hotter or colder than you're used to, ask your real estate professional to find out what the home's energy bills have typically been. This can help prevent being surprised by a higher utility bill than you're expecting. If you're moving into a new community, find out about water costs, too.
4. Don't forget miscellaneous expenses. Be sure to budget for moving expenses and additional maintenance costs. Newer homes tend to need less maintenance than older ones, but all homes require upkeep. If you're considering a condo or a home with a homeowners association (HOA), remember to include HOA dues in your budget. Keep in mind that you should have an emergency fund on hand to prepare for any unexpected changes in your income (like reduction in your wages) or unexpected expenses (like medical bills).
5. Manage your debt carefully after your home purchase. Sometimes your home will need new appliances, landscaping or maybe even a new roof. Planning for these expenses carefully can help you avoid one of the most common causes of missed mortgage payments: carrying too much debt. It's important not to overextend your credit card and other debts so you stay current on your payments.
6. Get prequalified for a mortgage before you start shopping. Knowing how much you can borrow will let you keep your search focused on the homes that are right for you. Getting prequalified (you can prequalify for a Bank of America mortgage online) will provide you with an estimate of how much you can borrow before you start looking at homes. adatext
FAQs
Proof of your current income and income history for at least two full years (typically tax returns and withholding statements combined with pay stubs or wage statements). Checking account and credit card statements to show your spending patterns. Proof that you have the resources to make your down payment.
What credit score do you need for first time home buyer in NJ? ›
New Jersey home buyer stats
Down payment amounts are based on the state's most recently available average home sale price. “Minimum” down payment assumes 3% down on a conventional mortgage with a minimum credit score of 620.
What financial information is needed to buy a house? ›
Your qualification to receive a mortgage loan comes down, in part, to your debt-to-income ratio. Your pay stubs and tax documents show your income. Next you'll need to show any outstanding loans you have, including car payments, student loans, additional mortgages or credit card debt.
What qualifies as a first time home buyer in NJ? ›
You're considered a first-time homebuyer if you have not owned a home within the previous three years. Are you planning to purchase a home in New Jersey?
What should my budget be as a first time home buyer? ›
A good rule of thumb for home much home you can afford, one way is to calculate your homebuying budget is the 28% rule. This rule states that your mortgage should not cost you more than 28% of your gross earnings each month.
What should my income be before buying a house? ›
Now, Americans must earn roughly $106,500 in order to comfortably afford a typical home, a significant increase from the $59,000 annual household income that put homeownership within reach for families in 2020, according to new research from digital real estate company Zillow.
What is the $10 000 grant for first-time home buyers in NJ? ›
Provides $10,000 for qualified first-time homebuyers to use as down payment and closing cost assistance when purchasing a home in New Jersey. The DPA is an interest-free, five-year forgivable second loan with no monthly payment.
Is an FHA loan good for first-time buyers? ›
FHA Loans Are Perfect For First-Time Homebuyers
While it's true that these loans are often a good fit for folks who are buying their first home, they're not limited to this group. In fact, anyone who meets the eligibility requirements can apply for an FHA loan.
What credit score do I need to buy a house with no money down? ›
A USDA loan is insured by the U.S. Department of Agriculture and is meant for low- to moderate-income home buyers. The USDA doesn't require a down payment and doesn't set a minimum credit score requirement, though most lenders will want borrowers to have at least a 640.
How much money should you put toward your home's downpayment? ›
If you can easily afford it, you should probably put 20% down on a house. You'll avoid paying for private mortgage insurance, and you'll have a lower loan amount and smaller monthly payments to worry about. You could save a lot of money in the long run.
Those three key elements are Credit, Down Payment, and Income. When applying for a mortgage you need to consider not only your credit score, but you're your overall credit profile.
What income do banks look at when buying a house? ›
You can use many different income sources to qualify for a mortgage, including: Employment income: Base pay or wages, bonuses, commissions, overtime payments and self-employment income. Schedule K-1: Income and distributions from partnerships, S corporations and estates.
How much down payment for a 500k house? ›
Conforming loan down payments can vary from 3% to 20% or more, so for a $500,000 home, you'd need between $15,000 and $100,000. Conforming loans, once again, follow Fannie Mae and Freddie Mac guidelines and usually offer competitive terms.
What is the minimum credit score to buy a house in New Jersey? ›
The required credit scores for mortgages in New Jersey differ based on the type of loan. Conventional loans demand a score of 620, while government-backed loans are more lenient. However, a score below 500 makes mortgage approval difficult.
How much are closing costs in NJ? ›
In general, these are the ranges you can expect when figuring out who pays closing costs in New Jersey. Buyers typically pay: 2%-3% of the home's price. Sellers typically pay: 5%-8% of the home's price (including agent commissions that average 4%-6% in NJ.)
What is an important financial detail to consider when purchasing a home? ›
You should examine your income, savings (for a down payment and closing costs), and recurring debt to figure out how much house you can afford to buy. The 43% debt-to-income (DTI) ratio standard is a good guideline for being approved and being able to afford a mortgage loan.
What is the financial rule for buying a house? ›
According to the 28/36 rule, you should spend no more than 28% of your gross monthly income on housing and no more than 36% on all debts.
Which should you finance first your needs? ›
1. Needs: It is advisable to finance your needs first. Needs are essential for your basic living requirements such as food, shelter, clothing, healthcare, and transportation. By fulfilling your needs first, you ensure that you have a stable foundation to support your overall well-being.
What is the first step in preparing for homeownership? ›
Step 1: Complete an inventory of your housing needs, assess your lifestyle, and consider how home ownership will enhance your life. Home ownership is a personal journey — everything from your desire for buying a home to your housing needs and your financial capability is personal.
