Buying a house isn’t as simple as shopping for clothes or any other commonplace items. And while we all know that for a fact, it’s hard to apply, especially for first-time homebuyers.
Our housing specialists compiled a list of must-know tips for you to note so your home buying process will be a lot easier.
Remember: HOME for Your New Home
To make things easier to retain, we’ve made use of the acronym “HOME”:
- Home-Planning
- Overbudget
- Mortgage and Loans
- Explore, Extend, Expand
Under these headings are also more sub-tips, so make sure to go through the following sections Keep in mind that these are not particularly subsequent in order. The best way to go about them is to fit them with your needs, situation, and circumstance.
Home-Planning
As the word entails, planning is not about choosing specific houses right off the bat. Understanding what type of houses by research or by consulting real estate agents helps you get an idea what type of home you want to purchase.
In addition, when we say planning, we’re referring to the knowing-what-kind-of-home you want. Or in other words, what’s your dream home?
- How many bedrooms do you need?
- Do you have a target location?
- How many members will your home have?
- Do you need a place that allows pets?
This advice for first-time home buyers entails setting your negotiables and non-negotiables. This will make it easier for you to know how much money to save when to say yes and no, and the other considerations that will follow.
Overbudget
By “overbudget,” our team means to over-budget: always go beyond what’s “enough.”
As much as possible, make sure you do not scrape from your emergency fund, retirement savings, monthly payments, and insurance. If you have to, you’re not financially ready to buy a house yet.
Overbudgeting is also an excellent way to maintain financial health, so the additional costs won’t easily dent your budget. Believe us when we say that there will be a lot of hidden costs.
The purchase price of your house is not the be-all-end-all. You have to consider these:
- Down payment (some require 20% downpayment, some 3% - it varies)
- Property taxes, tax breaks
- Price of your real estate agent services
- Mortgage payment
- Homeowners insurance
- Mortgage insurance
- Home inspection fee
- Moving expenses
- Interest rates
- Closing costs
These are on top of your other expenses outside of the home search. We’re talking about tens of thousands per month. That’s why a lot of home buyers start to save money as early as possible.
Consult a Certified Financial Planner
The good news is, you’re not alone in this process. Although financial planners will cost more, they are trusted guides to help you budget your money without ruining your long-term financial goals.
There’s also such a thing as Consumer Financial Protection Bureau, a US government agency, that can protect you should you encounter scammers or go through conflicts (i.e., with your credit report, complaints about a mortgage broker, etc.).
Mortgage and Loans
First-time buyers ignore tons of mortgage programs that can help you with your costs. Mortgage lenders, brokers, and loan programs are standard and everywhere.
But it’s understandable why: first-time home buyers want to avoid mortgage insurance fees, mortgage expenses, and all other additional costs that can bring you to a money pit spiral. This scenario is entirely possible – so we’re not discrediting the fear.
Here are some trusted loan programs you can check out:
- Loans for veteran military service members
- Loan program from your local bank
- Conventional loans (a conventional loan is one from private lenders, private mortgage insurance, or any programs not by the government)
The Mortgage Process: A Quick Overview
While this is not exactly an article about mortgages, our team wants to give you a quick run-through of the necessary steps and important points you need to consider now.
1. Checking of Financial Status, History, and Credit Score
Any mortgage lender would want to know your financial history first. From your bank statements and credit score, they want to see if you’re capable and responsible for paying your dues.
Here are some additional notes to keep in mind:
- If you have past debts (i.e., student loans), it's better to pay them off first to improve your credit score.
- A decent score or having good sources of income (i.e., high-paying job, high-yield savings account, etc.) would also make your monthly mortgage payment a lot lower.
- You can also use a mortgage calculator beforehand to get a glimpse, so you won't be shocked by what's to come!
2. Mortgage Pre-Approval
After performing a background check, you’re now subject to a mortgage preapproval. You’re not yet approved, but you’re qualified.
The good news is, almost everyone passes this stage. It’s just a matter of how well your score is. A bad one can mean a larger down payment required or higher monthly mortgage payments.
The next step is the actual home shopping. And yes, home shopping is in the middle of the process for a mortgage application. After choosing a home and settling your downpayment, it’s time to process your application and close the deal. This step is where the closing costs come in.
Recommended reading: Best apps for real estate agents
Explore, Extend, Expand
Now that you’re getting into serious business, another advice for a first-time home buyer is not to limit yourself.
First-time home buyers may feel slightly intimidated and be timid. They usually say yes to the first things they see. Don’t be afraid to negotiate and don’t be scared to consult another real estate professional if needed.
A good real estate agent will genuinely help you. They will understand that this is a real estate transaction in a competitive market and that you’re a first-time home buyer trying to explore your options.
Here are some other things to explore:
- Go to more than one open houses
- Negotiate on the down payment and monthly payment
- Canvas the pricing of your home insurance company
- Check out more than one locations
- Research and ask for opinions
Feel free to choose. First-time home buyers like you need to understand this will be your home. You have the liberty to be reasonably picky, to take charge of how you want to budget your finances, and more.
Also check:
FAQ
Are There Fixed Rates for Down Payment?
There are no fixed rates for down payment. It will depend on the sellers of your home, and they will base it on your financial records.
It’s a matter of trust, too. They will most likely require a higher down payment if your credit records are inadequate. This ensures that even if you run off or fail to finish the transaction, they have your down payment to hold on to.
What Exactly Are Closing Costs?
Closing costs are the fees on top of the entire transaction. They are incurred upon the completion of the transaction. You may think of them as miscellaneous fees too. Some examples are:
- Loan origination fees
- Appraisal fees
- Discount points
- Title searches
- Title insurance
That’s why it’s essential to follow the 2nd tip: over budget. There are costs on top of costs!
Is It Harder to Buy A House If You're a First-Time Buyer?
It’s not harder per se, but you do have to prove that you’re a serious and qualified buyer.
Since the real estate market is competitive, sellers may tend to trust those who already have experience. Experienced buyers will also know how to negotiate better and get their way around, so if you’re “competing” with someone like that, it can be more challenging to convince them.
But don’t worry, that’s not a rampant concern. As long as you have the money, completed the requirements, and if you’re serious, real estate agents won’t ignore you.
What Season Is the Best for Buying a Home?
They say that the winter season would be the best time if you’re catching the low-rates season. Since it’s either too cold to go out, or some are out of town, buyers are not active during this season.
That means sellers would have to lower their prices too or be easier to negotiate with since there aren’t many buyers.
What's a Good Credit Score?
The standard would depend on the lenders, but the average minimum is 620 or higher [1]. You can improve your credit score as you, too.
Summary
Home-Planning
This doesn’t mean immediately selecting your house. Plan first. What are your non-negotiables? What is your target location? How many rooms do you need?
Overbudget
On top of your house price, there are a lot of additional costs.
When planning for your financial allocations, ensure you’re saving over and beyond your intended budget. Perhaps 2-3 times your original goal. You can also consult advisors and professionals to help you manage your finances better. Securing your money is also helpful in speeding up the process.
Mortgage and Loans
You don’t have to rely on your own money 100%.
While we’re not encouraging debts, we’re suggesting the possibility of loans. There are trusted government-run agencies to help you within safety precautions and avoid scams. But be wary of the plans you are applying to. Conduct a lot of research before getting into contracts.
Explore, Extend, Expand
Don’t limit yourself to the options in front of you. This is a common mistake, and a lot of sly agents know that. So make sure to explore, extend, and expand more options before finalizing anything.
Conclusion
Buying your first home can be intimidating. Of course, you’d want everything to be perfect without denting your budget at the same time.
But our housing specialists are here to tell you not to worry too much. There are government agencies set in place, trusted agents, and tons of tips willingly shared by experienced buyers! Our team hopes that this guide and pieces advice for a first-time home buyer has shed some light on home-hunting journey.
