Being a first-time home buyer is exciting! But I know it can also feel overwhelming—especially with rising home prices and available homes flying off the market.
With real estate trends like those, you might be tempted to make an impulsive purchase that could hurt your financial goals and keep you paying a mortgage well into retirement.
No one wants that! Trust me, it’s worth doing this the right way. And that means buying a home that you love and that doesn’t hurt your future money goals.
You may be thinking, Yeah, that would be great! But where do I even start?
Here are 10 Tips for you in your home buying process.
- Pay Off Debt and Start Saving
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!
- Determine How Much House You Can Afford
Before you get emotionally attached to a beautiful house, 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 me and your insurance company for estimates to calculate how much house you can afford.
- Save a Down Payment
If saving up to pay cash for the total price of a house isn’t reasonable for your family’s timeline, at least 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 amount, and you’ll be charged that 1% every year. So it can really add a lot to your monthly mortgage payment.
If a 20% down payment seems out of reach for you, there are first-time home buyer programs that offer single-digit down payments.
Adjustable-Rate Mortgages (ARMs): ARMs might seem great with a low initial interest rate, but they allow lenders to adjust the rate to transfer the risk of rising interest rates (and monthly payments) to you.
FHA Loans: You may be able to get an FHA mortgage with as little as 3.5% down
VA Loans: VA loans allow veterans to buy a home with no down payment.
- Save for Closing Costs
Along with your down payment, you’ll also need to pay for closing costs. If you’re a first-time home buyer, you may be wondering how much it costs to close on a house. 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 Preapproved for a Loan
Once you’re confident you have enough cash saved to pay for closing costs and you down payment, you’re ready to talk to a mortgage lender.
Get pre-qualified for a loan and take the extra time to get a preapproval letter before you start your home search. Preapproval 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 preapproved, 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 use a multiple listing service (MLS) to find homes that meet your criteria in your desired areas.
- 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 an NAR survey, home buyers are more willing to compromise on a home’s condition (23%) and size (19%) than on the quality of its neighborhood (7%) and distance from a school (2%).5 So make sure you factor neighborhood quality and location into your decision.
Ask me for information on crime rates and the quality of schools around your prospective neighborhoods. Calculate your new commute times to see if they seem manageable. Visit the neighborhood at different times and days to check for traffic conditions and noise levels and to see 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 do eventually find a house you love, you’ll know how your place compares to better or worse homes in that neighborhood.
When it comes to buying, a good strategy is to find the most affordable house in the best neighborhood. If you buy at the bottom of the price range in a good neighborhood, you’ll have more room to build home value.
For instance, let’s say you find a home that’s the only one on the block without wood floors and granite countertops. If you have the cash to make those upgrades, you’ll be able to add instant value to your home!
- Make a Competitive Offer (That’s Within Your Budget!)
Let’s say you found the home you want and can afford. Since you’re already preapproved 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 me to help you make sure your offer is competitive but also within your budget and the home’s value. Be careful not to make an impulsive offer that’s higher than you can afford just to knock out the competition. 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. Keep things running smoothly by knowing what to expect when closing on a house. The average closing process takes 43 days, which gives you plenty of time to tackle closing items. I will schedule the remaining steps from home inspection to final walkthrough, and keep you informed about any roadblocks.
As you prepare for closing, make sure you read every document and ask me to explain anything you don’t understand—especially before you sign the official contract for the home transaction. It’ll be your signature on the documents, so you’ll be the one responsible for anything you sign.