Learn strategies for saving a down payment, applying for a mortgage, shopping for a house, and finally the purchasing process. Identify your new home needs, wants, and must-haves. We want all sorts of things from our dream home—and it’s possible to get many of them, even if you’re a first-time homebuyer. But it’s important to know what your priorities are. Chances are, you’ll have to make some compromises, and knowing what’s most important can help you decide what to be flexible on. These tips will help you navigate the process, save money and close the deal.
Preparing To Buy a Home
Purchasing a home is a major life milestone and the largest financial transaction many people will need to navigate in their career, so it is understandable that the home-buying process can feel overwhelming—especially if you have never bought property before.
- Start Saving – Some conventional loans aimed at first-time buyers with excellent credit require as little as 3% down. But even at 3% of a $300,000 home is $9,000. Use a down payment calculator to decide on a goal. Set up automated transfers from your checking account to your saving account to achieve the amount you will need. You will also need to consider the closing costs. Closing costs are the fees you need to finalize your mortgage. Closing costs can be as much as your down payment. They will be 2% to 6% of the loan amount. And you will have moving-in expenses. There may be some home repairs or renovations you will need to do. And Furnishings and moving expenses from one location to another can be expensive.
- Set Your Budget – How much home can you afford? Your home range will be based on your income, debt, down payment, credit score, and location you prefer. If you expect your monthly expenses like utilities or homeowners insurance to increase once you move, take that into account as well. Finally, if you’re looking at homes that need a lot of work, think carefully about how much such improvements could cost and whether you will be able to live without them if money is tight immediately after the move.
- Mortgage and Interest Rates Depend on Your Credit Score – So check and strengthen your credit. Having a higher score will generally get you a lower interest rate. Pay all your bills on time and keep credit card balances as low as possible. Check your credit reports. There are three bureaus (Experian, Equifax, and TransUnion) that will supply you with free reports. If you find an error dispute it immediately.
Select a Type of Mortgage
- Explore Your Options – There are many different variables associated with buying a house for the first time. As you do not have direct experience buying a house in the past, you will need to consider a lot of different variables for the first time. If you are a first-time home buyer, then there are usually going to be two major types of mortgages that you will have available for you to consider. These will be loans that are government-backed and those that are conventional loans. If you go for a government-backed loan, this means that the government ensures it and it takes the risk away from the lender in case there is a default on this loan by the borrower. You will also have the option of a 15 or 30-year mortgage. A 15-year loan typically has a lower interest rate than a 30-year mortgage but the monthly payments are larger.
- Does Your State or City or County Have a First-time Home Buyer Program? – Many states, cities, and counties do have first-time buyers programs that will give low-interest-rate mortgages with some down payment help and even costing cost help. There are also federal tax credits for 1st time home buyers if you qualify so check out the tax credit codes.
- What Types of Loans are Available for First-time Home Buyers? – Compare mortgage rates and fees. First-time home buyers can qualify for almost any loan type. However, some — such as FHA loans and Fannie Mae and Freddie Mac programs — are better suited to people trying to get a foot on the property ladder. You can choose from a variety of government-backed and conventional loans. The lender may offer the opportunity to buy discount points, which are fees the borrower pays upfront to lower the interest rate. In a buyer’s market, some sellers may offer to pay some of the points to close the deal.
- Serious Buyers Come with a Preapproval Letter from a Lender – A prequalification or preapproval letter is a document from a lender stating that the lender is tentatively willing to lend to you, up to a certain loan amount. This document is based on certain assumptions the lender will offer to loan you a certain amount under specific terms. Apply for preapproval when you are ready to start home shopping. Applying for preapproval letters from a few lenders to shop rates will not hurt your credit score
Shopping For You Home
Prioritize your needs and wants. What you think of the neighborhood is as important as what you think of your new home. Face it — when working within a budget, sometimes you have to make some compromises. Knowing what you really need can help narrow your home options and also make decisions easier when it comes to making an offer. Create a checklist of your needs and wants.
- Choose the Best Real Estate Agent – With all of these professionals vying for your business, how do you decide which agent is right for you? Taking the time to interview candidates is important. A few questions to ask.
- How long have you been in business, and what is your sales volume?
- How will you communicate with me, and how often?
- Are you a full-time or part-time agent?
- How many properties should I see before I make an offer on one
You might also ask how they find homes that aren’t yet on the market, which can be a real skill when buyer competition is high.
- Location, Location, Location, and the Right Type of Home for You – Do you want to look for a condominium, a townhouse, or a single-family home? Remember to ask about the HOA (homeowner association assessment) cost if there is one. Another option would be a fixer-upper, If you choose a fixer-upper in the location you love you just need to budget extra for repairs and remodeling. You can add that cost to the loan.
- Creating a Budget For Your First Home – Most financial advisors agree that people should spend no more than 28 percent of their gross monthly income on housing expenses, and no more than 36 percent on total debt. The 28/36 percent rule is a tried-and-true home affordability rule of thumb that establishes a baseline for what you can afford to pay every month. Stay strong and stay within your budget to avoid financial stress down the road.
- Virtual Home Tours vs Open Houses -The real estate industry is constantly growing and evolving. As imaging and technology continue to advance, brokers can implement interactive exploratory tools such as floor plans, 3D photo tools, and virtual video tours to their websites to attract more potential buyers. Allowing potential buyers the opportunity to walk through a house from the comfort of their own homes, virtual tours are an essential feature to offer as a seller and agent since it provides an immersive experience that is more interactive than pictures. But when you decide on a few homes you really like make the most of a real home tour. Open your senses in person. Listen for noise, pay attention to any odors, and look at the overall condition of the house inside and out. Ask about the electrical, plumbing, HVAC, systems, and roof.
Home Purchasing Tips
Closing is the day you officially get the keys to your new home—and pay all the various parties involved. That will include your down payment for your loan, plus closing costs, and the extra fees you pay to process your loan. Before you get to that day here are a few tips…
- Pay for a Home Inspection – A home inspection is a limited, non-invasive examination of the condition of a home, often in connection with the sale of that home. Home inspections are usually conducted by a home inspector who has the training and certifications to perform such inspections. Make sure the inspector can get to every part of the house such as the roof and crawl spaces. Go with the inspector if possible. Ask questions and review the report carefully.
- If Problems Are Found, It’s Time to Negotiate with the Seller – You may be able to save money if the seller agrees to pay for repairs or lower the home price to cover the cost of repairs. Your negotiating power will depend on the local market. It is tougher to drive a hard bargain when there are more buyers than homes for sale.
- Buy Home Insurance Before the Closing of the Home – What is typically covered by home insurance? A standard homeowners insurance policy provides coverage to repair or replace your home and its contents in the event of damage. That usually includes damage resulting from fire, smoke, theft, vandalism, or damage caused by a weather event such as lightning, wind, or hail.
The bottom line is to plan ahead when buying a house for the first time. Buying a home for the first time doesn’t have to be overwhelming. Wherever you land, it’s you and your loved ones who bring a home to life.
Dan provides clients with years of proven experience and an abundance of financing options for their mortgages. His common sense approach and devotion to customer service is what sets him apart in the highly competitive mortgage industry. Dan prides himself on consistently delivering “referable services” to his clients, referral sources, and partners.