Buying a home can be overwhelming, nerve-wracking and downright intimidating, especially for first-time home buyers. There are typically hundreds of thousands of dollars involved and it will likely be one of the largest purchases you’ll ever make. Scared yet? Don’t be. Here are some helpful tips and information to help guide you.
“Real Estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” - Franklin D. Roosevelt
When you’re through reading the tips in this article you should feel far more comfortable about taking on your first home purchase. Let’s dive in: here are 7 Tips for First-Time Home Buyers.
1. Educate Yourself
The good news is you’re here, and you’re ready to learn more about the home buying process. Educating yourself is one of, if not, the most important aspect of buying a home, especially for the first-time buyers. You will want to understand the home buying process from start to finish BEFORE you jump in and start looking at homes. It's great to buy a home early on if you are able. It is a way to build your equity, and if you hold your properties until retirement, there’s a strong chance you’ve built a nice nest egg.
Read everything you can get your hands on. There is a lot of great information online for buying homes, and there is some not so good stuff as well.
2. Understand Your Mortgage Options
Understanding the mortgage side of home buying can be confusing. One of the easiest ways to understand the money aspect is the ACID test. Assets, Credit, Income, Debts will all play a role in your ability to qualify for a mortgage as well as the interest rate you receive on it. There are a lot of programs available to first-time home buyers that typically revolve around downpayment assistance. Not all first-time buyers realize the programs available, and how they can help when buying a first home. There is a common misbelief that a 20% downpayment is needed, and this just isn’t the case in some cases.
A 3.5-5% down payment may be doable for many buyers, not just first-timers. Make sure you ask your Mortgage Lender and real estate agent about programs available to you as a first-time buyer. A lot of first-time buyers don’t realize that closing costs are something you need to budget for as well. Ask your Mortgage Lender about the expected closing costs so you have a good understanding of how much money you will need to bring to closing and budget that into your total home cost.
3. Have a Strategy
When you’re buying a home it’s always important to have a strategy, or a general understanding of what you’re trying to accomplish, and why. Some people buy homes as long-term investments, and some buy them as starter homes. What are you buying yours as?
Are you planning to have children in this home? Maybe you want to be shopping in a certain school district if that is the case. If you’re buying a home as a starter home you need to pay attention to its resale value in 5-10 years since you may be selling it in the not too distant future.
With a property that you purchase as a long-term investment, you may want to consider what the rental prices are in the area should you choose to turn it into an investment property one day. However, if you’re buying a home as an investor then you probably won’t qualify for many of the down payment assistance programs unless you plan to live in the home for a significant amount of time.
4. Know Your Financial Limits
Before you set out to buy a home you will want to have a good understanding of your limits. You don’t necessarily want to max out your budget or buy at the top of what you can afford. Knowing your limits ahead of time involves a mortgage pre-approval, which should be your first step in buying a home. You want to know how much of a home you can afford, and what your monthly payments are likely going to look like.
On top of that, you will want to make sure that the monthly payment is something you can comfortably afford, while still enjoying the luxuries of your lifestyle. Maybe you like to eat out, travel or drive a nice car. Your home will also require you to put money back into it at certain points in time when things break.
Knowing that there is more than just a mortgage and interest payment will help you stay within your true budget, and allow you to enjoy your home.
5. Determine Your Priorities
The location is one of the most important aspects of buying a home. First-time buyers can sometimes confuse the true value of a home when they search online. A big reason is that the location of the home plays an important role in the price of the home. Understanding your priorities in a location is as important as understanding your needs in a home.
Write down things your home needs to have vs. what you want your home to have. A needs-analysis will give you a better understanding of what home to buy. It will also limit the amount of confusion you experience in the home buying process. Many first-time home buyers will confuse their ‘wants’ with their ‘needs’ and grow confused when it comes time to make decisions between homes.
6. Time the Move
As the closing date on your home grows closer, you will want to give yourself plenty of time to pack. Developing a plan will go a long way in your packing. Boxes, tape, and items to label what is in which box will help. Changing your address, and notifying the appropriate parties of this change is an important step in your move. Your mail may still be sent to your old address is not updated properly!
Additionally, there are sometimes hiccups in the buying process. This could mean renting out a storage unit nearby to hold your stuff during any ‘gaps’ that you experience between where you are living now, and moving into your new house. After closing, and before you move into your new home you will want to turn on all the utilities such as water, electricity, gas, internet, etc.
7. Prepare for Homeownership
Prepare yourself to own a home. A property comes with additional responsibilities and additional expenses. You will want to set aside a budget for large projects such as the roof, HVAC and an emergency budget in the event something happens.
Calculate out your monthly expenses. Mortgage, utilities, car payments, food, business expenses, and anything else that is a recurring debt. Once you have thought through all of your recurring debts add $500 to the final number and multiply that number by around 5 times. This will be a conservative way to ensure you have an emergency savings. Preparing for the worst case scenario with your savings is a great way to approach owning a home.
Hopefully you’ve found some helpful tips for first-time home buyers inside this article, and if you have any left-over questions feel free to contact your friendly neighborhood real estate agent!