Houses for Sale

Tips And Advice For A First Time Home Buyer?

Buying your first home is a major milestone in your life. Having a property that’s your very own gives you the ability to build weather, have the freedom to do as you please, and many other benefits.

Of course, it helps to have some useful tips and guidance so that you purchase the right home without unnecessary complications. In this article, we’ll be covering a number of tips for every stage of the homebuying process, from preparing to buy, finding the right home, signing the contract, and much more.

Tips for Preparing to Buy a Home

Save as soon as you can

A home is a major expense requiring significant upfront cash to avoid unfavorable loan terms and live comfortably.

The following are the main costs associated with a conventional home:

  • Down payment: Depending on the type of mortgage you choose and the lender’s requirements, having a substantial down payment helps keep interest rates down over the course of the loan. While 20% is recommended to avoid private mortgage insurance (PMI), some mortgages can be secured for as little as 5%. For other types of loans (such as the VA Loan and FHA Loan), you can pay as little as 3.5% upfront. Bear in mind that these percentages for an initial down payment can be a large for many first-time homebuyers. For example, a $200,000 home requiring a 20% mortgage means that you’ll pay $40,000; at 5%, this is still $10,000.
  • Closing costs: There are a number of fees and expenses associated with finalizing your mortgage. Typically, these range from 2% to 5% of the loan amount. Using our above example, having $160,000 remaining after a 20% down payment on the mortgage means that $3,200 for 2%, $8,000 for 5%. That being said, closing costs can be negotiated in the contract with the seller as a concession to facilitate a quicker purchase.
  • Move-in expenses: After the home purchase, you’ll need some cash on hand to furnish the home, pay for movers, address immediate home repairs, and so forth.

Determine how much home you can afford

One mistake that first-time home owners commonly make is purchasing more house then they can afford. Generally speaking, most real estate professionals suggest that your mortgage shouldn’t take up more than ¼ of your income. If you make $50,000/year, that would mean that $1,250 per month should be the maximum you can afford for your mortgage.

Strengthen your credit score

Your credit score is responsible for determining the terms of your mortgage, the interest rate, and even if you qualify. Generally speaking, 620 is the minimum score needed to secure a conventional mortgage, but some lenders require a larger down payment to compensate for the risk they are taking on.

As a U.S. citizen, you are entitled to receive 3 free credit reports per year from the three major credit bureaus - Equifax, Experian, and TransUnion. Review each report for a look into your credit history. If there are any outstanding debts, pay them immediately. If you discover any outstanding debts that you already paid off, you will have to contact those companies directly to ensure that these errors are taken off.

Last, when you’re about to submit your loan application, make sure to avoid large purchases funded through new loans and credit. Your credit utilization rate is important for your credit score, and any new activity can temporarily lower your score until you’ve proven that you can handle that amount.

Selecting a Mortgage

Understand your mortgage options

First-time homeowners should understand that there are multiple paths to homeownership through different types of mortgages, each with their own required down payment percentage and eligibility requirements. The main categories of mortgages include:

  • Conventional mortgages: These are loans from private lenders and are not guaranteed by the government. Depending on the lender, you may be able to secure a mortgage targeted at first-time buyers for as little as 3% down.
  • FHA loans: Insured by the Federal Housing Administration (FHA), these mortgages allow food down payments as low as 3.5%.
  • VA loans: Guaranteed by the Department of Veterans Affairs (VA), these mortgages are reserved for current and veteran military service members. VA loans usually require no down payment or a significantly lower rate than comparable conventional mortgages. .
  • USDA loans: Guaranteed by the U.S. Department of Agriculture (USDA), these loans are designed to accommodate rural home buyers and typically require no down payment.

Choosing the Right Mortgage Terms

Depending on your mortgage, you will have the choice to select the terms of the mortgage. This means that you can select a 30-year fixed-rate mortgage (the most common type), which means that the mortgage will be paid off in 30 years and has an interest rate that won’t fluctuate. A 15-year fixed-rate loan usually has a lower interest rate than a comparable 30-year mortgage, but monthly payments will be larger.

Home Shopping Tips

Obtain a Preapproval Letter

A mortgage preapproval letter is a lender’s offer to loan a potential homeowner a certain amount under specific terms. By having a preapproval letter, it shows sellers and real estate agents that you’re prepared to buy as soon as possible, giving you an advantage over buyers that haven’t been approved for a mortgage yet.

Choosing the right real estate agent

Working with a real estate agency can help expedite the process of searching for a home. They can also help you through the negotiation and closing process, giving you a 3rd-party in your corner that helps you make a realistic purchase for your needs and means.

Choose the right type of house and neighborhood

It’s important to carefully look at the quality of the home that you’re choosing and where it is located. Even a great house in a bad neighborhood can be a disaster; vice versa, a home in poor condition can be fixed up through “sweat equity” and drastically increase in value if it is located in a good neighborhood.

Inspect the home during an open house

Be sure to attend an open house or schedule a private viewing for the home you’re looking at. While 3D virtual home tours are becoming more popular due to the COVID-19 pandemic, there is no substitute for seeing, smelling, and hearing the home in person. Plus, you can ask the realtor or owner questions about the home’s condition and history - all valuable sources of information about how good of an investment the home is.

Home Purchasing Tips

Have the home inspected before purchasing

Hiring a professional inspection of the home is a smart decision for first-time homebuyers, as you’ll have a professional that can look for potential problems that might go unnoticed. Be sure to attend the inspection and ask questions. Because the homeowner is usually present for a home inspection, you can learn insights about the home and its history that you wouldn’t ordinarily know otherwise.

Negotiate a fair price with the seller

Most homeowners sell their homes for an above fair-market value in order to give some leeway during negotiations. During the inspection of the home, you should use any problems that you notice as leverage for a price reduction or concessions that the seller is responsible for to complete the deal.

Buy home insurance

Lenders require the purchase of homeowners insurance for most mortgages before closing the deal with a seller. Be sure to buy the appropriate amount of insurance, not just the basic policy. Disaster can strike any time. Having the home and your possessions protected can protect your investment and help rebuild in the event of an accident.