In 2016, there were almost 1.8 million first-time homebuyers in the U.S.
Buying your first home is a big decision, that involves both your financial stability and your life plan.
Are you considering buying a home but are overwhelmed by the process?
Let’s take a look at 11 tips for buying a home for the first time.
Know About the Advantage of Being a First-Time Buyer
If you haven’t owned your main residence in the last three years, you’re typically eligible to apply for first time home buyer benefits and loans.
While it might feel like a disadvantage to be a first-time homebuyer, it can actually work to your advantage. Look for things like grants for closing costs, down payment assistance, low or no down payment loans, and federal tax credits.
Figure Out How Much House You Can Afford
Before you start shopping around for your first home, you’ll want to take a look at your finances and your life plan. A good rule of thumb is that it’s worth it to buy rather than rent if you’re going to live in a home for at least five years.
If you’re not going to be staying put for that long, renting could make more financial sense for you.
This is, of course, just a general guideline. Your specific circumstance might vary. To help you make the right decision for you, you can use one of the many rent vs. buy calculators available online.
There are also a number of tools online that break down how much your monthly mortgage would be.
There is a rule known as the 28/36 debt-to-income rule. The idea here is that you shouldn’t spend more than 28% of your monthly income on expenses that are housing-related.
It also indicates that you shouldn’t spend more than 36% of your monthly income against all debts, which includes this new mortgage.
When considering how much house to buy, don’t forget it’s not just your down payment and mortgage you need to worry about. You’ll have to also factor in the property taxes, maintenance or improvement costs, the cost of homeowners insurance, and the cost of the closing.
Remember, just because the bank would allow you to borrow a certain amount to buy a house, that doesn’t mean that’s necessarily how big of a loan you should take out. If you borrow too much from the bank, you could end up “house-poor.”
Determine What Kind of House You Want
One of the best tips for buying a house you’ll receive is that you can’t over-invest in deciding what you want in a home. When you buy a house, you’re going to live in a for several years at least.
If you don’t think through what you’re looking for, you could live in a place that doesn’t fit your needs or your family’s needs.
First of all, what type of home do you want? There are single-family homes, townhouses, co-ops, duplexes, condos, and multi-family businesses.
Determine your homeownership goals and then decide which of these types of properties will best help you reach your goals.
Some first-time homeowners go the route of buying a fixer-upper to save money on the purchase price of the home. While this works out for some people, it’s important to realize how big of a project it can be to restore a house.
It often takes more time, more money, and more sweat equity than you planned for.
On top of what type of house you want, also think about what features you need the house to have and which ones you want it to have.
It’s important to keep some flexibility in your list as rarely will you find a home with absolutely everything you want and need. However, know what features you don’t want to compromise on and stick to that.
Get Your Finances in Order for the Mortgage Process
Before you start shopping for your dream house, get your finances in order.
You’ll want to check into your credit score and make sure there aren’t any errors. Getting a mortgage requires you to have a good credit score.
Make sure to pay down any credit card balances you might have and maybe even stop using the cards for two months before your mortgage application.
Remember, if you have a co-buyer, both credit scores will most likely be considered. To improve your credit score to any significant degree requires at least six months.
Next, you’ll need to save up money for your down payment and closing costs.
Another thing you’ll want to do is get all of your documentation in order. This includes things like bank statements, W-2’s, and paystubs. If you’re self-employed, make sure you have copies of the last two years of tax returns.
Shop for a Mortgage
One of the most important homes buying tips, particularly in a hot market, is to shop for a mortgage ahead of time. Many people wait too late to look for financing and miss out on their dream house to another buyer whose finances were in order. Consider getting pre-approved for a mortgage before shopping for your home.
Hire a Real Estate Agent
Some tips for buying real estate will encourage you to forgo hiring a real estate agent to save money. While this can make sense for people who are willing to put in tons of legwork, it can be a disadvantage for many first-time homebuyers.
A real estate agent can help you find the homes that fit your criteria. They’ll also be able to help you in negotiating the purchase and navigating the process.
Are you looking for a real estate firm that’s focused on value-add investment opportunities? Check out plurisre.com.
Find a Home
Now for the fun part- looking for a home you love! Use all of the tools at your disposal to find the perfect home. This includes searching through online listings, using your real estate agent, and going for drives through the neighborhoods you’re interested in.
To find the right home, you can also tap into your network. Check-in with family, friends, and business contacts to see if they have any leads.
Make an Offer
This is another part of the home buying process where a real estate agent is key. They’ll help you understand how much you should offer for the house as well as any conditions you should ask for.
The agent will bring your offer before the seller’s agent. They’ll either accept the offer you’ve made or make a counteroffer. At any point, either side can accept the stated offer or walk away.
If an agreement is reached, you’ll then make a good-faith deposit. The process transitions into a short time-period known as escrow.
Have the Home Inspected
When buying a house, you never want to skip having a professional inspect the property. They’ll be able to give you a report on the safety, quality, and overall condition of the house.
Home inspections can reveal defects that weren’t disclosed by the seller. If this is the case, you can walk away and get the deposit you made back. The other option is to re-negotiate and have the seller discount the selling price or make the necessary repairs.
Close or Move On
Finally, you’re at the closing process. If you decide to go through with the purchase after the inspection, you’re in the home stretch.
Closing pretty much involves the signing of a lot of paperwork. In the final stages of the purchase, you might be required to pay for having the home appraised, doing a title search, and obtaining private mortgage insurance.
You also might be required to pay for title insurance, loan-origination fees, taxes, surveys, and credit-report charges.
You Own a Home: Now What?
Once you finally have the keys to your new home, you might feel like the hard part is over. In many ways, that’s true. In others, though, this is just the beginning of the responsibilities that come along with homeownership.
Once you have your home, remember to keep saving. You’ll want to start an emergency fund for when there major unexpected expenses arise.
You’ll also be responsible for performing regular property maintenance. By doing this, you reduce the risk and costs of larger problems.
Now that you’re settled in your new home, remember not to fixate on the housing market. The market ebbs and flows, and it’s not worth losing sleep over the worth of your home fluctuating with the market.
These Tips for Buying a Home Will Ensure You Avoid Unfortunate Surprises
The homebuying process is complicated. That means that many first-time homebuyers get surprised by some requirement or part of the process that they didn’t know about. Educating yourself about the process means you can be as prepared as possible for this huge purchase.
Did you find this article full of tips for buying a home helpful? If so, be sure to check out the rest of our blog!