Buying a house is a big decision. It’s often an extremely stressful process, especially for first-time homebuyers. To avoid homeowner anxiety or fear, here are some of the most common fears homebuyers experience and the best ways to overcome them.
MY CREDIT SCORE IS TOO LOW TO QUALIFY FOR A MORTGAGE
When applying for a mortgage, many lenders evaluate your financial health before authorizing loan approval. They will review several factors, including your credit score, to decide if you’re financially fit for homeownership. Therefore, before you apply for a mortgage, take the time to review your credit score. If you spot any errors, make sure you dispute them with the credit reporting company.
Additionally, if you have any accounts in collections or a lot of outstanding debt, you may want to focus on improving your credit score before applying for a mortgage. While you pay off your debt, make sure you also pay your bills on time, keep your credit balances to a minimum, and try to avoid applying for new lines of credit.
I MAY NOT HAVE ENOUGH CASH FOR A DOWN PAYMENT
Putting 20% down on a home can seem like a big feat. If you don’t have the cash but still want to pursue homeownership, it’s possible to do so with less than 20% of the home’s value. However, there is a tradeoff. If you can’t put 20% down, your lender may require you to get private mortgage insurance (PMI), which may increase your monthly mortgage payment.
If you don't want to worry about PMI, you still have several options. You could wait to buy a home and increase your savings amount, or you could ask a family member if they would be willing to lend you the money as a gift. But, if you're considering a down payment gift, the lender may require specific documentation. Another option is to research home buying assistance, such as the National HomeBuyers Fund (NHF).
MY INTEREST RATE MIGHT BE TOO HIGH
The interest rate on your mortgage will determine how much your loan costs over time. Even a slight variation can drastically impact the cost of your home. That said, you must shop around and find the best rate and terms available. Comparing lenders is worth your time and effort since it can save you hundreds—or even thousands—of dollars throughout your loan.
But, if your credit score isn’t great, you may want to take some time to improve your credit standing. This will help you receive the best terms and rates available.
I DON’T HAVE ENOUGH CASH TO COVER MY CLOSING COSTS
Not only will you need cash for a down payment on your home, but you will need to divvy up some funds for your closing costs. Closing costs may range between two and five percent of the total price of your home. If you don’t think you have enough cash to afford this, you could ask the seller to pay for some, or all, of the closing costs.
However, the amount the seller can pay may depend on the type of loan. If the seller can’t pay for some of the closing costs, you can ask your lender if they can add the closing costs to your mortgage, or delay the payment until the end of the month. By doing this, you could reduce the amount of interest you'll pay and may reduce escrow fees.
THE BOTTOM LINE
Buying a home is a big deal, so it's natural to feel stressed or fearful about the process. But, if you take action and do your homework, your homebuying worries will be a thing of the past.