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Taking your first plunge into homeownership is a mix of excitement and nerves. Buying your first home is a major milestone that demands thoughtful planning, diligent saving, and unwavering commitment. Before diving in, it’s crucial to arm yourself with knowledge about the home-buying process to avoid potential pitfalls. We’ve gathered these expert tips to guide you smoothly through the highs and lows of securing your dream home.
1. Research First-Time Home Buyer Assistance Programs
The last thing you want to do when making a large purchase is miss out on a money-saving program. Some states and cities often offer first-time home buyer programs, which combine low-interest-rate loans with down payment and closing cost assistance. Plus, based on your income, you could qualify for a forgivable loan grant that doesn’t require you to pay it back.
There are also tax credits for first-time buyers. Do not leave this money sitting on the table. Research your location’s regulations and keep some of your hard-earned money in your pocket!
2. Start Saving Early
It is never too early to start saving up for your first home. Whether you are part of a couple or an individual, you should be adamant about putting money away each month to achieve your goal of home ownership.
Easy ways to cut expenses and grow your future down payment include cutting unnecessary expenditures, paying off high-interest loans, setting a budget, and tracking expenses. Once you have established a down payment you feel comfortable with, you can start the home-buying process.
3. Calculate All Initial Costs
It is important to understand that your down payment is not the only money you will need when buying a home. Other expenses like closing costs, moving fees, and inspection fees must be included in your budget.
Some people forget that buying a home comes with hidden move-in fees. Congrats, you bought this nice new house, but now you have to pay movers to help you move in.
According to Lending Tree, closing costs typically range from about 2% to 6% of the loan amount. You can sometimes ask the seller to cover some of these costs, but you must still be prepared for these payments.
4. Get Your Credit Score Ready
Your credit score will be vital in determining your loan approval and mortgage rate. The better your score, the more money you will save on a lower interest rate.
Some key factors that help strengthen your credit score include paying bills on time, keeping the balance low, having a healthy history, and limiting excessive accounts. Most credit unions and banks offer free credit monitoring that will keep you updated on your scores and alert you if any suspicious activity occurs under your name.
5. Decide How Much You Can Afford
The first step for future homeowners is determining how much they can afford. The last thing you want to do is fall in love with a home out of your reach, only to be disappointed when you aren’t approved.
Luckily, free tools are available through websites that can help you set a price range based on your income, debt, down payment, and purchase location.
6. Explore Mortgage Options
When it comes to choosing the mortgage that is best for you, there are a few options. Options like 15-year to 30-year loans are available with adjustable or fixed rates. While 15-year loans come with larger monthly payments, they come with lower interest rates. Adjustable rates can start low but grow over time, making them ideal for people planning to sell their homes in a few years.
When considering your mortgage, consider your short-term and long-term goals. These decisions could help you save a lot of money over the lifetime of your home ownership.
7. Get Pre-Approved
Getting pre-approved by a lender is the best way to show home sellers and real estate agencies that you are not wasting their time and are seriously considering purchasing a home.
A pre-approved amount can help you narrow down the homes you are looking at based on price. It will also give you a leg up on competitors because it shows that you have done your due diligence before taking out a hefty loan.
8. Gather Your Loan Paperwork
Before you get approved for your mortgage loan, you must prove your income, assets, and debts to your lender. Make sure you have access to all of your bank records, retirement funds, tax returns, W-2s, 1099s, and documents related to divorce, bankruptcy, or foreclosure.
9. Chose the Right Real Estate Agent
During the buying process, you will spend a lot of time with your real estate agent. Finding an agent you can respect and trust and who has your best interests in mind is significant.
When interviewing potential agents, ask about their experiences, research methods, referrals, and knowledge of the neighborhoods you want to purchase in.
10. Make a Wishlist
This might be the most fun part of the home-buying process. It’s like window shopping for your new home. Even though it might be fun to look at features like pools, patios, and outdoor BBQs, it is essential to focus on your needs.
When making your wishlist, try to narrow down factors like location, size, age, price range, style, and yard size. These factors are more critical than luxuries added to the property over time.
11. Narrow Down Your Market
After you have dialed in your price range, budget, pre-approval, and down payment, you will need to decide where exactly you want to buy. Are you looking for a fixer-upper or a ready-to-move-in house? Do you want a big yard or the comfort of an HOA-maintained condo community?
When researching potential neighborhoods, you should focus on property value, property taxes, schooling, safety ratings, and entertainment options. The last thing you want to discover is whether your chosen neighborhood is unsafe or doesn’t satisfy your needs for local restaurants, shops, or schooling.
12. Stick to Your Budget
Lenders can often approve you for a loan for an amount higher than you feel comfortable spending. This is when sticking to your budget is vital, especially when accepting a loan out of your price range. Looking at homes in the lower range of your budget can give you some leeway when negotiating and dealing with counteroffers.
Buying a home can get competitive. Sometimes, you might be confronted with someone looking to outbid you. It might be challenging, but checking your ego and walking away could be the best option rather than spending more than you can afford.
13. Do a Thorough Walk Through
Doing a physical walk-through before buying a home is crucial to understanding the home’s condition. Virtual 3D home tours can give a good idea of the home, but they don’t give you the physical feel of the property.
Real estate experts believe future home buyers should tour the home several times at different parts of the day. This will give the buyer an idea of traffic patterns, noise levels, foot traffic, and how the building insulates heat or keeps cool.
14. Get a Home Inspection
If this is your first time buying a house, you are likely unsure what you are looking for when touring a property. Even experts can miss some glaring red flags.
Home inspectors are there to provide a complete, professional report on the state of the house. This includes searches for mold, pest damage, radon, and roof and foundation damage. These professionals can help you determine how well the home was maintained and alert you to any repairs that will be needed.
15. Negotiate the Price
Just because the home is listed for a specific price doesn’t mean it is set in stone. Negotiation is a step in any home-buying purchase. Don’t be afraid to offer a number lower than the listed price, especially if it is closer to your budgeted range.
There are many ways to negotiate the price down. You may be able to save money by asking the seller to fix or pay for repairs. You may also ask the seller to pay some of the closing costs.
16. Buy Home Insurance
Buying homeowners insurance might be a requirement before closing the deal. Proper homeowners insurance covers the cost to repair or replace your home and personal belongings if they’re ruined by a random occurrence covered in the policy. Also, if a tragedy happened and your house was destroyed, this insurance would cover the cost of rebuilding your home.
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