First-time home buyers have unique challenges. Given the complexity of the process and the stakes involved, it's natural to feel worried about making a misstep. Regardless of your motivations, there may be a long way to go before you can relax and enjoy your home purchase. For first-time home buyers starting out on the path to homeownership, here are our best tips.
1. Start Saving Early
As a first-time home buyer, the most important thing you can do is start saving. The down payment and closing costs are just two of the main large up-front expenses associated with purchasing a property. If you qualify as a first-time home buyer, funding for your down payment and closing fees may be available through a number of programs, some of which are administered by state governments and others by nonprofit organizations.
2. Determine how much you can afford
Before you start looking, determine how much you can afford to spend on a home. You may be approved by the bank for a specific amount, but that doesn't necessarily indicate you can afford it. This is a common pitfall for first-time home buyers, who often find themselves "house poor" after covering their mortgage and other monthly bills.
House hunting on a lower budget than what you're pre-approved for can give you an edge in a competitive market. In the event of a bidding war, which is not uncommon in the current market, you will have the opportunity to pay more than the asking price.
3. Examine your credit
Your credit score will decide if you are eligible for a mortgage and will have an impact on the interest rate that lenders will provide. Your final approval may be affected if they discover that you have taken up other loans or lines of credit, that your credit card balance has increased, or that you have started to make late payments.
For first-time home buyers, try not to start any dangerous spending or seek to affect your credit rating for the better or worse. Lenders want to know that you have stable and dependable behavior patterns for future payments.
4. Get a pre-approval letter
For first-time home buyers, it can be tempting to start looking for the ideal home right away. But before you start comparing properties, it's a really good idea to obtain a pre-approval letter.
In many cases, sellers won't even consider an offer if it doesn't come with a mortgage pre-approval. A pre-approval letter can provide you an advantage over other home shoppers who haven't taken this step yet by demonstrating to home sellers and real estate agents that you're a serious buyer.
5. Consider your mortgage choices
There are numerous mortgages available with various qualifying and down payment criteria. The major categories are as follows:
Conventional Loans: This is the most popular type of home loan. You can put down as little as 3% when buying a house.
FHA Loans: This is insured by the Federal Housing Administration, which permits a 3.5% down payment and a credit score as low as 580.
USDA Loans: Offered by the U.S. Department of Agriculture and for buyers looking for homes in a qualified rural or suburban area. With certain constraints on household income, you can obtain a USDA loan with no down payment.
VA Loans: Guaranteed by the Department of Veterans Affairs and offered only to the veteran military service member and usually with no down payment.
Once you have a target in mind, it's much simpler to plan when you'll be able to make the move by setting up regular deposits into your savings account.
6. Hire a Real Estate Agent
Real Estate Agents and REALTORS® are local professionals who are knowledgeable about the home-buying process and your neighborhood market. There are a lot of benefits when you work with real estate agents. In addition to searching the market for properties that suit your needs, a skilled real estate agent can also help you with the negotiation and closing processes.
Ask prospective agents how they will assist you in finding a property and about their expertise in assisting first-time home buyers in your area. Keep in mind that only a buyer's agent will work for you. Relying on the seller's agent to act in your best interests is not a good idea.
7. Think about your wants and needs
Start exploring neighborhoods early in the process because finding the perfect spot and address can take much longer than you anticipate. Choose a place with the features you value, such as entertainment facilities and schools, then test the commute during peak hours.
Now is a good time to specify your preferences for the house itself along with the neighborhood. Although a condominium or townhome may be less expensive than a single-family home, there will be less privacy because of shared walls with the neighbors.
The amenities you desire in your home can be prioritized based on your needs once you've chosen the style of home that's best for you. For instance, if you want to have children or require a home office, you might concentrate on locating a house with extra bedrooms. A large yard or a home close to lots of green space may be unavoidable if pets are your world.
8. Use open homes to your advantage
Homebuyers can use these tours to get a feel for a property. Pay close attention to any unusual sounds, smells, and visuals, and evaluate the house as a whole. Inquire as to the make and age of the roofing material and the plumbing and electrical systems.
9. Hire an Inspector
Before you buy a home, you need to get it checked out by a professional. Professional inspectors look for possible problems so you can decide if you want to buy the property or not.
Most of the time, it helps if the buyer is there for any inspections. By following the inspectors around the house, you can learn more about it and ask questions right away. If you can't go to the inspections, carefully read the reports and ask questions about anything that isn't clear.
A home inspection clause is often part of a letter for putting down a deposit. This lets you back out of an offer and keeps your deposit if the house needs a lot of work.
10. Purchase appropriate home insurance
Prior to completing the agreement, your lender will ask you to purchase homeowners insurance. If an incident covered by the policy damages your home or your belongings, home insurance will pay to restore or replace them.
Additionally, it offers liability insurance in case you're held accountable for a mishap or damage. Purchase adequate house insurance to pay for the expense of rebuilding the house in the event of a disaster.
The Bottom Line
You don't have to feel stress when purchasing your home as a first-time home buyer. There is no such thing as a "home" until you and your loved ones make it into one. In order to ensure that the purchase does not negatively impact your standard of living, it is important to keep your finances in good shape.