Buying a home is an exciting yet daunting experience especially when you are a first-time home buyer. Seeing the median listings can make you feel overwhelmed let alone deciding on your very first home. Making a wrong decision can adversely affect your long-term financial goals and overall stability.
1. Pay Your Debts
The last thing you want is to move into your new home with a mountain of debt looming over you. Since you will have to pay mortgage now, having to pay off debts too will put a financial strain on you. So do your best to pay off your debts before you buy a home.
2. Set Aside Some Funds for Maintenance
Owning a home sometimes can be more expensive than renting a place. This is because you will now be responsible for maintenance and up-keep of the house. So set aside some funds for emergency use in case an unexpected expense arises. You can use this article as a guide to help you figure out how much you need to set aside for maintenance.
3. Calculate How Much House You Can Afford
The rule of thumb is that the home you buy should not have expenses like taxes, insurance or HOA fees etc. attached to it that exceed 25% of your take-home pay. You don’t want most of your pay going into the house and have little left for your basic needs and savings.
4. Search for Homes You Can Afford
It is a no brainer that you should be looking for homes in your price range. If you set your heart on a home you can’t afford, you are in for heartbreak. Search for homes you like that fall in your price range and show your real estate agent so they know what you want. It goes without saying that we recommend to contract a real estate agent to help you with this endeavor. They are professionals and their help will be invaluable. There are countless articles online with great suggestions on how to find the right real estate agent to work with, here is one of them.
5. Set Aside Funds for Down Payment
Some say it is prudent to set aside funds that at least cover 20% of your mortgage as a down payment. In reality you can find lenders that will finance your home for 5% or even 0% down. In general, the more you put down the better loan terms you can get. Your credit score and debt-to-income ratio are of crucial importance to qualify for a loan and to establish its terms.
6. Set Aside Funds for Closing
The closing cost of a home is usually 1-4% of the total purchase price. Along with the down payment you have to cover this cost too. You can pay for closing costs out of pocket or negotiate with the seller so that your closing costs are included in the purchase price of the property, in which case the seller might increase the asking price by the same amount as your closing costs. Keep in mind that the later will increase your mortgage loan amount and interests will be paid for it.
7. Get Approved for a Loan in Advance
It would be a good idea to get approved for a loan by mortgage lenders in advance. This shows both the seller and your real estate agent that you are a serious buyer and makes the whole process smoother. Many agents will require you to get a pre-approval letter from a lender before showing any homes to you.
8. Do Some Research on the Neighborhoods
According to research 78% people believe the quality of the neighborhood matters more than the size of the home. So when you are looking for your first home, make sure you don’t just look at the property but also research the neighborhood to make sure there will be no surprises down the road. Trulia is a widely used source to find basic information about crime and schools in a specific area. Also talk to your future neighbors and drive around the area during different times of the day and night. This should give you a good idea of how it would be to live there.
9. Attend Open Houses
Attend some open houses in the neighborhoods you like. It will help you know the area better and when you decide on a place, it will help you visualize how your home compares to the ones you saw.
10. Make a Reasonable Offer
Before making an offer, you can ask your agent to find out if there is any flexibility in the asking price. You might be pleasantly surprised by the seller’s response. When the time comes, don’t be afraid of making an offer that is within your budget and is competitive.
Remember, buying your first house can be one of the most exciting or stressful experiences in your live. It all depends on making the right decisions, don’t stretch it, know your financial limitations and goals, and take your time. Having the right team on your side is critical, make sure your real estate agent, lender and home inspector know what you want and have your best interests in mind.