Buying a home is a tremendous investment. It requires adequate planning and budgeting of your finances for the best results. As you’ll see in the details below, it’s a venture you shouldn’t jump into without all the facts to make the process smoother.
So today, we’ll discuss some tips for first-time home buyers and how you can avoid the major pitfalls that can hinder the entire process.
I | What You Should Know Before House Hunting
Before your house hunt, take the time to set the groundwork. This groundwork includes getting your financial life in order and preapproval for a mortgage. We’ve already discussed the tips for increasing your chances of getting a mortgage, so here are the cliff notes.
- Get a credit report from each of the three credit rating agencies.
- Mortgage companies use your credit score as a risk indicator when making lending decisions. Aim for a healthy credit score; the higher the score, the better your chances of avoiding costly borrowing.
- Before mortgage or house hunting, you need to consider what you can afford based on your income status, debt, and other financial obligations.
- Save up for your down payment and closing costs. Try saving for advanced monthly payments in case of emergencies.
- Research first-time home buyer programs in your area for added support and tax incentives.
- Research the mortgage products on the market. You can choose between a conventional mortgage loan or one backed by the government for specially qualified future home buyers.
- Decide if you want to continue the process through a mortgage broker or tackle it alone.
- Look at the prepayment penalties and ensure you’re safe to clear off your mortgage earlier than the noted term timeframe.
- Get a preapproval letter from a lender before shopping for a house. This letter will show home sellers and real estate agents you’re placing a serious inquiry.
Purchasing a home is a marathon, not a sprint. Unless you already have the funds and no credit issues or debt. This is not the ideal case for many American homebuyers who are juggling multiple jobs and living paycheck to paycheck.
Take the time to cover your bases. Complete your pre-mortgage preparations and shop for a mortgage before house shopping.
II | 6 Tips for First-Time Home Buyers
1. List your needs and non-negotiables.
Consider what features you want and need in a home before shopping. Create a list of these features and the qualities you’re looking for. Categorize them into groups of needs and non-negotiables.
Location preference
If you’re moving for a new job, commute time might be the deciding factor. Perhaps you need a home a certain distance away from elderly dependents. Maybe you’re moving to give your child a better education in a chosen school district.
Possibly leaving the hustle and bustle of a big city is your goal. Proximity needs would limit your house hunting to a particular geographical area.
Design and features preference
If your goal is to buy a home where you can start your own family, perhaps you want a sizable backyard. Maybe a certain number of bedrooms and private bathrooms. A gated community may be what you’re looking for if security is a concern. But perhaps you’re not into the upkeep. Then a condo or townhouse might be to your liking. If privacy is another concern, shared walls with neighbors might not be the best option.
Keep the dream
Include a third category of ‘dream features.’ These are features you don’t need immediately. They are elements you can save for and add later once you’ve settled all the necessities of your new home. It’s good to dream and keep your reasons for purchasing a home at the forefront of your mind as motivation.
Efficiency minus the stress
Once you’ve decided on the type of home you want, you can prioritize the features you’re looking for. Making your list before seeking an agent will make it easier for you to choose the right one. Agent listings vary, and some specialize in certain types of real estate.
The more you know about your wants and needs, the better you can instruct your agent for a faster and more efficient house hunting process.
2. Work with a real estate agent.
After you know what you want, it’s time to get help. Seek a qualified REALTOR® or real estate agent. Even if the seller works with a real estate agent, commission your own.
The seller’s agent will not represent your interest. Their priority is their client. The person who is paying their fees. Your agent will be your advocate in the home buying process. They’ll search the market for homes that meet your needs.
Here’s where the list you created in the first step comes in handy. Knowing what you’re looking for makes it easier to find it.
A real estate professional will:
- Show you properties that meet your needs and budget;
- Attend showings with you and help you with comparison shopping;
- Help you decide your offering price for a property and send the offer letter on your behalf;
- Help you negotiate the final purchase price if you offer anything less than the seller’s asking price;
- Guide you through the negotiation and closing process.
Check your social and family circles for agent referrals. Interview a few and check out their listings, past and present. Discuss the agent’s experience with helping first-time home buyers and the support they can provide.
3. Research homes and neighborhoods for the best fit.
Based on your list of needs, non-negotiables, and budget, research the houses on the market.
The house
Weigh the pros and cons of the style of house you choose. And what it means for additional costs. Suppose you plan on purchasing a home in a gated or planned community, budget for homeowners association fees. The same goes for townhouses and condos.
One of the biggest first-time homebuyer mistakes is thinking your first house has to be your last. You may want it to be, but perhaps your dream house requires a more personal touch you can’t find on the market.
You may encounter a nice single-family home fixer-upper in your ideal neighborhood. Instead of striking it completely, consider how much it would cost versus a move-in-ready home. Fixer-uppers usually sell for less, but repairs and remodeling will increase the backend’s price.
Renovation mortgages are available. With this type of mortgage, you can cover the purchase price and the cost of improvements with a single loan.
The neighbors
The neighbors and the neighborhood can majorly impact you as a homeowner. Sometimes, it might be more important than the property itself.
Once you find your desired home, take a walk or drive around the neighborhood. If you’re outgoing, start a conversation with the residents you meet. Ask them about their experiences living there and any recommendations they may have.
The neighborhood
Unlike a starter versus a forever home, safety and security are always non-negotiable. Research the crime rate in the area where you see a home you’re interested in. Also, check the distance between the house’s location and the nearest emergency services. Both fire and police stations. Is there a community watch? Is it an area prone to wildfires, floods, or any other natural disaster?
Research the neighborhood’s schools, health care facilities, and other amenities like shops, supermarkets, and green areas.
If you commute to work, check the traffic flow, especially during rush hour. Calculate your commute time and the most efficient routes.
If you’re caring for an elderly parent, perhaps an area with low noise pollution is more suitable.
4. Hire a home inspector.
Home inspections are an excellent way to find issues with a property. The inspector will assess the house for major structural or mechanical system issues. Crawl spaces and the roof should be accessible by the inspector.
Understand what’s included in the standard inspection. Most won’t cover mold, pests, radon, asbestos, and well and septic systems. These additional areas are available as add-ons with some companies.
Attend the inspection if at all possible. You’ll be able to ask on-the-spot questions about anything you don’t understand. Otherwise, read the final report thoroughly and ask for clarifications where needed. Ask for recommendations for additional inspections you may require.
The results of the inspector’s report will help you make an informed decision. Highlight the problems and request concessions from the seller. We’ll discuss this further in the next section.
5. Negotiate with the seller.
You don’t have to accept the asking price of a home you’re buying. There may be room for negotiation. An experienced agent can assist you in negotiating a better price within your price range in a competitive market.
The home inspection may highlight savings opportunities. Should the inspector’s report note any significant repairs, negotiate the terms where:
- The seller makes the repairs before you settle the purchase;
- The seller drops the price of the house as a concession for the additional expenses of you completing the repairs;
- The seller pays some of the closing costs as allowed by the lender.
Your agent will help you make a competitive offer that reflects the home’s value within your budget. How much leverage you have depends on the local market. If there are more buyers than homes for sale, this will weaken your negotiating power. Your real estate agent will advise you according to the market trends.
Be confident when you make an offer and only submit it if you’re committed to the purchase. Otherwise, you risk losing your earnest money deposit. Also known as a ‘good faith deposit,’ this down payment shows your seriousness about the offer. The amount usually ranges from 1 to 3% of the total home loan value.
You’ll lose this deposit if you pull out of the sale for any reason not listed in the offer letter. Finding significant faults with the property during the home inspection is grounds for withdrawing your offer without losing your money.
6. But adequate home insurance.
Mortgage lenders require the purchase of homeowners insurance before closing the deal. It’s how they ensure their investment remains secure.
Home insurance covers the cost of repairs and replacement of your home and belongings if damaged by a named peril in your policy.
Liability coverage is part of the policy. Should you become liable for any accidents or injuries on your property, this portion of the policy covers legal and compensation fees.
The cost of homeowners insurance depends on the house you purchase. Keep that in mind when house hunting.
III | The Hidden Costs of Homeownership
The cost of homeownership is continuous, and they add up. Potential expenses include:
- Maintenance and repair costs;
- Monthly charges for utilities;
- Property taxes;
- Mortgage payment;
- Home insurance;
- Homeowners association fees.
Not understanding all the costs involved and including them in your monthly budget leaves gaps for some nasty surprises.
Start a home savings fund for a rainy day and keep your anxiety in check by being prepared. How much you can save depends on your monthly income.
Do your best to save on mortgage and home insurance by shopping around and comparing quotes. Leave off the frills you don’t need from your policy and agreements.
IV | You Don't Have to Rush
When searching for a home, be patient. The average homeowner spends up to eight weeks searching for a house. But the process starts before that. The best way to know your price limitations is with a mortgage pre-approval. You’ll know, without the risk of overestimating, how much house you can afford.
Securing a mortgage might be the lengthiest part of the process if you don’t meet the optimal credit score requirements. Give yourself time to improve your financial health for good mortgage rate quotes and terms.
Once you’ve secured payment assistance, shop for houses within your price range. Your first house doesn’t need to be your last. Neither does it have to be your dream home as long as it’s a safe, comfortable place for you and your family.
Conclusion
Becoming a homeowner is a process. Don’t rush it. Learn the steps you need to take, from securing a mortgage preapproval to home hunting.
- List your needs, non-negotiables, and additional perks you’d want in a home.
- Find a real estate agent qualified to help you navigate the home-buying process. Ask your family, friends, and colleagues for agent recommendations.
- Factor in the type of house you require, your future neighbors, and the quality of the neighborhood into your decision.
- A thorough home inspection will ensure you purchase a safe, well-maintained property and don’t have to worry about unexpected expenses.
- Additional property offers will weaken your bargaining power, but negotiate the selling price for the best deal.
- Secure adequate insurance coverage and protect your investment. Buying a house might be the biggest purchase you ever make.
Life happens. Keep saving for emergencies and learn about how to save on expenses.
