Are you getting ready to buy your first home? If so, we couldn’t be more excited for you!
Because the home buying process can be complex (and a little stressful!), we’ve compiled some of our best advice to help you have the best home buying experience possible. Read through these first-time homebuyer tips before you start your home buying journey.
1. Get Preapproved for a Mortgage
Before you begin hunting for a new home, connect with a lender to get preapproved. Obtaining a preapproval is not the same as applying for a loan, but it will give you a general idea of how much the bank will be willing to lend you so you can adjust your home search accordingly.
To get preapproved, you’ll need to fill out an application and provide your lender with documentation such as pay stubs, bank statements, and tax returns.
In addition to helping you plan out your home buying budget, it’s vital to have your preapproval in hand before you make an offer on a home. In many cases (especially in a competitive real estate market), sellers won’t even entertain an offer if it doesn’t come with a preapproval letter.
From the seller’s standpoint, a preapproval letter indicates that you are likely to be able to get a loan to finance your purchase. This gives them peace of mind that financing issues are less likely to arise in the course of the home sale.
So if you haven’t already spoken with a lender, do so now. It’s a good idea to consult with a few different lenders to discuss loan options, rates, and fees before you choose one to work with.
2. Set a Budget
While your preapproval letter will give you an idea of how much the bank will be willing to lend you, that doesn’t necessarily mean you should spend that much on a home. In other words, just because a lender approves you for a certain amount doesn’t mean you can afford to pay that amount!
It’s a good idea to set up an estimated budget to figure out what you’re comfortable spending on a home.
As you do so, consider not only the home’s sale price, but also the interest rate, property taxes, and homeowners insurance, as well as other costs like utilities and HOA fees (if applicable). Remember that while your mortgage amount will stay the same year after year, both property taxes and homeowners insurance are likely to change each year.
Account for home maintenance costs as well. If you don’t budget enough for upkeep of your home, you’ll struggle when something needs to be fixed or replaced. While it’s difficult to foresee exactly how much home maintenance will cost you, a good rule of thumb to start with is 1-3% of your home’s value. If your home is large, older, or has amenities that require more expensive upkeep (like a pool) you’ll want to set aside more.
The goal of figuring out your budget now is to ensure you don’t overextend yourself when you buy your home. Ideally, you want to get into your home with money in the bank and a monthly payment that doesn’t leave you house poor.
3. Keep an Eye on Your Credit
One of the first things your lender will look at when considering you for a home loan is your credit rating. Your credit score can impact your ability to get a loan as well as your interest rate and down payment.
If you’re not sure what your credit score is, now is the time to find out. You can usually access your credit score for free through your bank or credit card account. In addition, you can receive one free credit report per year from each of the three major credit bureaus (Equifax, Experian, and TransUnion). Review your credit report carefully, and if you find errors, work to have them corrected.
If your score isn’t where you’d like it to be, work to improve it between now and when you apply for a loan by paying bills on time, paying down debt, and trying not to keep a balance on your credit cards. In addition, don’t close any credit or bank accounts, as that can have a negative impact on your score.
Keep in mind that it may take a few months to bring a low credit score up.
4. Save for a Down Payment and Closing Costs
If you can save enough to put 20% down on your home, it’s a good idea — it will help you avoid adding private mortgage insurance costs (PMI) to your monthly payment.
However, if you can’t do 20%, don’t stress: there are still many mortgage options that allow you to make a smaller down payment (in some cases, as little as 3%). Just keep in mind that if you do put less than 20% down, you’ll likely end up paying for private mortgage insurance. Lenders require PMI when you put less than 20% down on your loan, as it protects them if you fall behind on your payments.
In addition to saving for a down payment, you’ll also want to set some money aside for closing costs. Closing costs are the fees you pay to finalize your mortgage and transfer the title of your home. These costs can range from 2-6% of the loan amount.
Depending on the market and the individual situation, your RealtorⓇ may be able to negotiate with the seller to have them pay part or all of your closing costs. (However, in a more competitive market, that is much less likely to happen, so don’t count on it.)
As you’re saving for these costs, keep in mind how much it will cost to move and to furnish and customize your new home as well. Essentially, the more you can save before you buy your home, the better.
5. Explore First-Time Homebuyer Programs
Look for first-time homebuyer and down payment assistance programs at local, regional, and national levels. These programs are often limited to borrowers below a certain income, but it doesn’t hurt to check them out to see if you qualify.
Some of the most commonly used programs are FHA loans, VA loans (for veterans), and USDA loans (for rural properties). These programs offer benefits such as lower down payment requirements and lower interest rates. FHA also offers down payment assistance options. There may be additional state or local programs in your area you could qualify for.
You may also be able to find grants, special programs for fixer upper homes, and programs that benefit those who serve their communities (including firefighters, teachers, and law enforcement).
Ask your lender about the programs available in your area.
6. Write Your Wish List
It’s unlikely you’ll find everything you want in a home, so it’s a good idea to determine what you want vs what you need. Make a list of deal-breaker items as well as “nice-to-have” items. What can you absolutely not live without? What can you compromise on?
Don’t forget to include your preferred neighborhood and nearby amenities in your list. If it’s important to you to be in a certain school district or near certain amenities, you’ll need to keep that in mind as you search for a home.
House hunting can be overwhelming, and it can be easy to lose sight of what you actually need in a home. Having your wish list handy will help you stay on track in your home search.
7. Get a Home Inspection
In this competitive market, it can be tempting to forgo a home inspection to save on costs and get your offer accepted…but that’s generally not a good idea.
A thorough home inspection is vital to ensure you know what you’re getting into with the home you’re buying. It’s important to not only pay for a home inspection from a reputable home inspector, but also to attend the inspection so you can see exactly what repairs your home will need.
In many cases, some repairs may be negotiable with the seller. Talk with your RealtorⓇ for help determining what to ask for when negotiating the inspection.
8. Shop Around for Homeowners Insurance
As soon as you’re through the inspection and appraisal, start looking for a homeowners insurance policy.
It’s a good idea to shop around for the best combination of coverage and rates for your needs and budget. Try to connect with at least three different insurance carriers in your area and compare their estimates both for cost as well as what their plans cover.
Tip: most insurance agencies will give you a discount if you buy your home and auto insurance through their company. Buying both from a single insurance carrier could save you money.
9. Expect Bumps in the Road
The home buying process can have a lot of ups and downs. You may not get the first house you want…or the second. Be prepared to work through the disappointment and keep searching for a home — you will find one, it just might take some time.
Expect to have issues arise throughout the process, from multiple offer negotiations and inspection surprises to last-minute paperwork or requests from your lender. This process involves a LOT of paperwork, financial considerations, hoops to jump through, and contingencies to navigate.
It’s normal to run into a hurdle or two.
Regardless of which issues arise in your home buying journey, don’t get discouraged. Buying a home is a complex process, but with the help of your RealtorⓇ, you’ll soon be through all the hurdles and enjoying your new home!
10. Work With a Great RealtorⓇ
An experienced RealtorⓇ can help you work through all the bumps you encounter on the road to homeownership.
Your RealtorⓇ knows the market and the area you’re buying in, and can advise you on both. They can help ensure you know about new listings as soon as they come on the market, offer advice on whether or not a home is priced appropriately, identify potential issues with the home or the neighborhood, and help you negotiate pricing and terms with the seller.
When you work with a RealtorⓇ, they’re on your side throughout the entire process.
This is why it’s so important to find an experienced, qualified RealtorⓇ you feel comfortable working with. Working with a RealtorⓇ who understands the ins and outs of the homebuying process can make all the difference between a smooth transaction and a rocky one.
We hope these first-time homebuyer tips prove helpful as you navigate the home buying process for the first time.
If you’re gearing up to look for your first home, the Centric Homes Team would be honored to guide you through the process. Contact us today to start your home search and find a new place to call home!
