Being a first-time home buyer is exciting! But it can also feel overwhelming. Here are 10 tips for first-time home buyers as they tackle the home-buying process. Put these into practice today so your first home is a blessing not a burden.
Pay Off All Debt and Build an Emergency Fund
Owning a home is expensive—much more expensive than renting, even if your monthly house payment will be similar or cheaper than your current rent amount. That’s because when you own a home, you’re responsible for all the maintenance and upkeep costs. And those can add up fast! So, before you think about buying your first home, make sure you’re debt-free and have an emergency fund of three to six months of expenses in place. When you get into a home with no payments (besides the mortgage) and have a nice big emergency fund, you’ll have the cash to pay for huge expenses that suddenly come your way.
Determine How Much House You can Afford
Check your monthly budget to determine how much house you can afford. You need to leave room in your budget for other things, so make sure your monthly housing costs (including HOA fees, taxes, insurance, etc.) are going to be no more than 25% of your monthly take-home pay. Since property tax rates and the cost of homeowner’s insurance vary, check with your real estate agent and insurance company for estimates to calculate how much house you can afford.
Save a Downpayment
Save for a downpayment of 20% or more. save for a down payment of 20% or more. Then you won’t have to pay for private mortgage insurance (PMI), which protects the mortgage company in case you can’t make your payments and end up in foreclosure. PMI usually costs 1% of the total loan value and is added to your monthly payment.
Save for Closing Costs
Along with your down payment, you’ll also need to pay for closing costs. On average, closing costs are about 3–4% of the purchase price of your home. Your lender will give you a specific number so you know exactly what to bring on closing day. These fees pay for important steps in the home-buying process, including:
- Home inspection
- Credit report
- Homeowner’s insurance
Get Pre-approved for a Loan
Once you’re confident you have enough cash saved to pay for closing costs and 20% of your home, you’re ready to handle the other 80% by talking to a mortgage lender. Get pre-qualified for a loan and take the extra time to get a pre-approval letter before you start your home search. Pre-approval shows sellers that you’re a serious buyer, which is a great way for first-time home buyers to get ahead in a competitive market. To get pre-approved, your lender will need to verify your financial information (proof of income, taxes, etc.) and submit your loan for preliminary underwriting.
Find a Home for Sale in Your Price Range
Find homes you like online and send them to your real estate agent so they have a good idea of what you’re looking for. Then they can find homes that meet your criteria in your desired areas. Since we are members of MLS, we can help you to view the largest pool of properties for sale in the marketplace. We can also provide valuable market expertise and help you find great deals on homes as soon as (or before) they’re listed.
Research Neighborhoods for Best Fit
After you’ve found some homes for sale in your price range, be careful not to make a decision based on the property alone. According to a NAR survey, 78% of home buyers believe neighborhood quality is more important than the size of a home. And 57% of buyers would opt for a shorter commute over a larger yard. So make sure you factor neighborhood quality and location into your decision. Consult with your real estate agent and calculate your new commute times. Visit the neighborhood at different times and days to check for traffic conditions, noise levels, and if people are comfortable being outdoors. Only choose a neighborhood that you and your family feel good about.
Attend Open Houses and Think Long Term
Once you’ve narrowed down the neighborhoods, attend a few open houses. Looking at homes that are for sale—even if they’re not a perfect fit for you—is a great way to learn more about the area. When you eventually do find a house you love, you’ll know how your place compares to better or worse homes in that neighborhood.
Make a Competitive Offer (That’s withing your budget!)
Let’s say you found the home you want and can afford. Since you’re already pre-approved for a loan, you’re ready to make an offer. If you’re a first-time home buyer, it may be hard to know how much you should offer. That’s when you can rely on the expertise of your real estate agent. Ask your agent to help you make sure your offer is competitive but also within your budget and the home’s value. A personalized letter might help your offer stand out among multiple bids in a hot market.
Prepare for Closing
Once a seller accepts your offer, the closing process will begin. The average closing process takes 41 days, which gives you plenty of time to tackle closing items. A real estate agent will schedule the remaining steps, from home inspection to final walk-through, and keep you informed about any road blocks. As you prepare for closing, make sure you read every document and ask your real estate agent to explain anything you don’t understand—especially before you sign the official contract for the home transaction.
By Rachel Cruze is a seasoned communicator and #1 New York Times best-selling author, helping people learn the proper way to handle money and stay out of debt.