Key Takeaways:
- Despite what some may say, home ownership is a possibility
- Down payment and your credit score should be your primary focus before buying
- The Linda Craft is available to help with all of your first-time homebuying needs
When you listen to how everyone talks about the economy, it all sounds so doom and gloom. But it doesn’t have to be. Especially when we’re talking about real estate and the prospect of buying your first home. If you’re like 28 million other Americans, you’re likely considering becoming a first-time homebuyer within the next year. Also like many of those 28 million Americans, you’re worried about:
- Your credit score
- The down payment
If you have your sights set on buying your first home in the Triangle area, we have some guidance that can calm your concerns and make you more confident about searching through our available listings.
Manage Your Credit Score
A lot of things can negatively impact your credit score, from missed payments on your credit cards to a high debt utilization ratio. Luckily, there are opportunities to improve your credit to increase your chances of securing a low-interest mortgage for the home of your dreams. The higher your score and cleaner your record, the more likely you are to be approved for a lower interest rate.
Here are some tips on improving your credit score.
Check Your Score Frequently
Do you even know what your score is or what’s on your report? There are free services that give you a brief overview of your score at several credit bureaus and what may have caused it to drop.
By keeping an eye on your score, you’ll know what tactics are working so you can get more aggressive if you have the opportunity. You’ll also know if anything you’ve done had an inverse reaction and caused your score to drop. This would be the case if you increased the balance on a credit card or, believe it or not, closed an account completely. A closed account can increase your debt utilization ratio, negatively impacting your credit score.
Check for Errors
That’s right. Your credit report could have incorrect information that may link you to a debt that’s not yours. You can check for errors by using a free online service like Credit Karma. Pull up your report and match the listed accounts and the accounts you know you have open. If you see an error, the free service should offer an option to dispute any suspicious account.
Set Up Automatic Payments for Your Bills
Struggling to remember to pay your credit card bills? After just 30 days of being late, the credit card company can report the missed payment to the credit bureaus. The result is a reduced score and a poor credit history. Setting automatic payments on your bills ensures you won’t miss payments in the future.
Open Lines of Credit
This may sound counterproductive to reducing your score, but if you have no lines of credit, the bureaus have no way to assign you a score. Also, an extra line of credit decreases your debt utilization ratio, which positively affects your credit.
It’s a good idea to vary the type of balances you carry. Don’t open or max out too many credit cards thinking paying those off will give your score a boost. The latter will take a while to reverse and every hard inquiry has a slight impact on your score.
Preparing for the Down Payment
Buying a home is expensive. There’s just no way around that, regardless of whether you’re looking in Raleigh, Durham, or Chapel Hill. If you’re serious about buying, you’ll need to have a down payment. You may hear numbers like 20% of the purchase price being tossed about, but that’s not true anymore. In fact, the National Association of Realtors suggests that first-time homebuyers should expect to put down 6%.
Here are a few ways you can secure that 6%.
Start Saving Money Early
This may seem like an obvious one, but you really need to think about how to start saving. On a $400,000 purchase price, the down payment is still $24,000. And that doesn’t factor in closing costs, inspections, and other payments common during the homebuying process.
To start saving money, cut back on the nonessentials and avoid going out to eat as much as possible. You’d be surprised how quickly all that adds up, and you may easily be spending $1,000 or more on restaurants and eateries.
When you’re trying to save money, don’t tie it up money up in investments hoping to score it big. It should be ready and available to you the moment you need it.
Down Payment Assistance
As a first-time homebuyer, you may qualify for certain down payment assistance programs. North Carolina, for example, offers the NC 1st Home Advantage Down Payment, which is a $15,000 down payment that acts like a second mortgage that’s completely forgiven 15 years later.
You can also look into FHA loans, which offer low down payments and are designed to help first-time homebuyers.
Want to Become a First-Time Homebuyer?
You may have a little work to do to secure a big enough down payment or boost your credit score, but if you’re considering becoming a first-time homebuyer, you should give us a call. The Linda Craft Team can walk you through the entire process and provide you with important buyer resources. When you’re comfortable moving forward, we’ll start looking for the best Triangle area home that meets your needs and wants.