7 tips for first-time homebuyers
Buying your first home can be exciting—and stressful. Beyond the challenge of finding the right home in your chosen neighborhood, many financial questions are sure to arise. With advance planning—and saving—the homebuying process will be much easier.
Our top tips:
- Don’t buy a home primarily as an investment. Even if home values consistently rise in your area, you can’t be sure this will continue. If financial return is your primary goal, investing in stocks or bonds might be a better choice. For return on investment, plan to own a property for at least five years.
- Know what you can afford. Use a mortgage calculator to figure out how much you can borrow based on your monthly income and financial obligations. A general rule is to keep your housing costs below 31–40 percent of your gross monthly income.
- Check your credit score. Having a better credit score can mean lower mortgage rates. Take steps to boost your score before you start house hunting.
- Understand the other costs involved. Plan to pay property taxes and carry homeowner insurance. A home inspection can also help you plan for major repairs and routine maintenance. If you’re looking at a condo or home in a community that offers shared facilities like a pool, there may be monthly association fees.
- Save for a downpayment. Plan to put down at least 20 percent of your mortgage. Otherwise, you will have to pay private mortgage insurance (PMI) premiums on top of your mortgage payments until your loan-to-value ratio reaches 80 percent. The larger your downpayment, the easier it will be to qualify for a mortgage and negotiate the lowest rate. Plus, when sellers review multiple offers, the more you put down the more competitive your offer will be with other bids.
- Know what documents you need for your loan. Commonly requested documents include a fully executed agreement of sale for the property being purchased, bank and brokerage account statements, pay stubs, previous W2s, IRS Form 4506 (which authorizes a mortgage lender to obtain copies of a borrower’s tax returns directly from the IRS), and homeowners insurance policies.
- Get pre-approved for a loan. A preapproval letter specifies how much a lender is willing to lend you. It also lets real estate agents and sellers know that you’re a serious buyer because your financing is already arranged. In competitive markets in California, many realtors now ask for a preapproval letter before showing any properties or entering a contract with a buyer.
Additional resources:
- If you are a low- or moderate-income homebuyer or a veteran, there are homebuyer assistance programs offered by the California Housing Finance Agency (CalHFA).
- Many government programs require homebuyers to attend classes to be eligible. Find free housing counseling and classes at the U.S. Department of Housing and Urban Development.
- Check out the California Department of Real Estate’s First Home California program and podcast.
- The DFPI oversees mortgage lenders in California. You can look up mortgage lenders credentials on our website and, should you have any problems, submit a complaint with us or call (866) 275-2677.