First-time home buyers, do these three things first

So, you want to buy your first house, but the market has been white-hot, and it just wasn’t within reach.

But higher interest rates have cooled the market (at least a bit) and you’ve been saving for a down payment. A few more rate hikes and a few more dollars in your savings account and the dream of home ownership could become a reality. But before you start searching for houses, make sure you do these three things.

Eliminate debt and build an emergency savings account

Are these two things absolutely necessary before you buy a home? Not really. But there are some enormous benefits. Having no debt and an emergency savings account of three to six months’ salary gives you peace of mind. It’s not fun to think about, but you wouldn’t be the first person to move into a new home only to lose their job or have a contract dry up.

With a savings cushion in place, that worry is gone. It also gives lenders some peace of mind, too. Eliminating debt also creates more positive cash flow in your budget. That money can be directed toward saving enough for a twenty percent down payment.

That size down payment eliminates Private Mortgage Insurance (PMI), which homeowners must pay to the lender. Typically, less than twenty percent causes PMI to kick in. PMI is money that could have gone toward paying down your loan.

Finally, getting twenty percent down might open up the option of getting a fifteen-year mortgage instead of a thirty-year one. This can result in thousands of dollars saved in interest over the life of the loan.

Get pre-approved for a loan

This is not the same as getting pre-qualified.

Pre-approval means a lender is ready to provide you a loan up to a certain amount. Once you find a house that falls in that price range, the process of buying the home speeds up significantly

It also lets buyers know you are serious and gives you an idea of how much money a lender is willing to let you borrow.

Pick the right lender

This is arguably more important than picking the right agent because the mortgage will be with you long after the agent is gone. The right lender should have a teacher’s heart. First-time homebuyers have lots of questions, and lenders should take the time to answer them well.

If you feel rushed or neglected when speaking with your lender, that’s a red flag. They should tell you about the nuances and details of the lending process. They should also give you options that help you, not just ones that help line their pockets. For example, they should be able to tell you the pros and cons of getting a fixed rate loan vs. a variable rate loan.

They should also be very open about the amount they are willing to lend. It may be higher than what your budget will allow. Often first-time homebuyers think the amount is closely aligned to their actual budgets, but this is not always the case.

Putting it all together

Buying your first home can be a daunting task. But if you put yourself on firm financial footing, find a trustworthy lender, and get pre-approved for a loan, you’ll be well on your way to a successful home-buying experience.