Purchasing a new home is impressive and a large financial commitment. Houses are usually one of the most significant purchases that you will ever make. Buying your first home is a relatively simple process, as long as you have everything in order. It’s essential to learn the basics of purchasing a home and start planning early. Whether you’re planning to settle in the suburbs or buy a downtown high rise, there are some tips to help your first experience go as smoothly as possible.
- Understand the Market
The market fluctuates frequently, and it’s crucial to get a good idea of the trends in your area when you are buying real estate. Good research is going to give you the upper hand in the buying process.
It would help if you looked for trends such as the length of time that homes in the area stay on the market and how the asking prices are affected. With more insight, you’ll have more control over the selling price.
- The Importance of Good Credit
A solid credit score will permit you to qualify for better mortgage rates. With better rates, you’ll pay less money over the term of your loan and save tons of money. Even a difference of a quarter of a percent adds up over the traditional 30-year fixed mortgage. A high credit score provides lenders with the confidence that you’ll meet your loan’s obligations and that it will be paid back in full.
Most credit cards will give you your credit scores for free, and there are free apps that you can download on your phone to monitor them closely. As soon as you start looking at buying a home, it would be best if you got ahead of the game early by clearing negative credit marks against you.
A proactive approach is best since it can take a while to raise your score significantly. Strong credit scores can also help you refinance your mortgage to a better rate in the future.
- Determine Your Down Payment
One of the unexpected costs of buying your new home is the down payment. A down payment is the initial up-front and partial payment of your home that secures the deal. Depending on your budget, you’ll be in a better financial position long-term if you can afford to put more money down. The standard down payment is usually 20%, but a Federal Housing Administration (FHA) loan can be secured with as little as 3.5%.
A lot less money is coming out of your pocket on a lower down payment, but your interest rate and amount financed will be higher, meaning the total cost of your house will be higher. Start building a nest egg early that you will use specifically for your down payment. High-yield savings accounts, taxable accounts, and certificates of deposit are some ideas to compound your savings quickly.
- Get Pre-Approved
A mortgage pre-approval is an excellent method to determine the amount of money you can borrow, along with your potential interest rate and monthly payment. Getting pre-approved will help you prevent any unwelcome surprises later in the home buying process. If you are trying to buy a house in a competitive area, sellers are usually more willing to accept offers when buyers are pre-approved.
You’ll be able to stand out amongst other buyers and have some more control in negotiating a selling price. Pre-approval will also help by fixing any mistakes before you’re bound to a contract.
- Hire a Great Realtor
Don’t go at it alone. A competent realtor can make a huge difference in buying real estate for the first time. Experienced real estate agents understand the market and help negotiate a great deal for you. Look for referrals from friends and family that had a good experience using a trusted realtor.
You’ll also want a realtor who follows up with you diligently and keeps you informed of the steps in the process. Ask your potential realtors how they have helped other first-time buyers, and how they can help you stick to your budget. Avoid realtors that will try to get you to buy outside of your comfort zone because they are only looking for a giant commission check.
- Get an Inspection
Unless you buy new construction, a home inspection is always a must. Inspections are a comprehensive analysis of the structural systems, including plumbing, electrical, roof, windows and doors, and foundation work. A home inspection is your safety net to walk away from purchasing the home if you are uncomfortable with the report’s findings. Your realtor can also use any conclusions from the report to negotiate a better deal if you want to move forward. You can also get an idea of potential future costs and start budgeting for them immediately.
- Create a Realistic Budget
You may have friends or family that are categorized as “house poor.” Being house poor means most of your income goes towards your mortgage payment, and you have a little left over to do anything else.
To prevent yourself from becoming trapped, set a realistic budget from your income. Anticipate how much of your income will go towards taxes, HOA fees, and home maintenance and upkeep. As a general rule of thumb, your mortgage payment should not exceed 30% of your gross income.
- Make a Priority List
One of the lessons you’ll learn when buying real estate is no home is perfect for the first time. However, you should have a list of about three to five non-negotiables you want from your first home. Communicate your wish-list to your realtor and be willing to be flexible if the wish-list is unrealistic.
Buying a new home is a unique process filled with lots of unknowns. Once you choose to purchase a house, get all of your ducks in a row. Better organization will leave you a lot less stressed, and the process will go a lot more seamlessly. Soon, you will be holding the keys in your hand and starting the American Dream.