Whether you’re a young adult fresh out of college or a family ready to upgrade, buying your first home can be an exciting but daunting experience. To help make the process as smooth as possible, we’ve put together a list of thirteen tips for those buying a home for the first time.
From saving up for a down payment to deciding what neighborhood is right for you, we’ve got you covered! So if it’s your first time buying a house or you are already in the thick of the process, read on for some helpful advice.
Don’t Sign A Loan Agreement Until You’re Ready
Most mortgage loans have terms ranging between 15 to 30 years. That’s a long time! If you’re not sure that you want to be making payments for the next three decades, it may be wise to wait until you are. Some critical questions to consider are:
- Do I plan on staying in this home for a minimum of five years?
- Can I comfortably afford the monthly payments over the long term?
Once you’ve answered these questions, ask yourself if you’re ready to commit all that time and money to a single purchase.
Don’t Forget to Get a Preapproval
Don’t hop into house hunting until you’ve talked to a lender and received a preapproval letter. This will let you know the homes within your financial capacity and save you time by narrowing down your search to houses that are actually in your price range. A preapproval letter is based on your credit score and debt-to-income ratio, so it’s important to start the process early and make sure your credit is in good shape.
Maintain Your Credit
When applying for a loan, your creditors will check your creditworthiness to determine what kind of risk they would take by extending your credit. Just before you close on a home, the lender you’re working with will do another credit check.
If your score has dropped significantly, they may not be willing to approve the loan. To avoid this scenario, make sure to monitor your credit throughout the process.
Put Money Towards A Down Payment
If you are buying a home for the first time, the Federal Housing Administration’s (FHA) may give you access to an FHA loan. If you can also put up a downpayment of up to 20%, you can avoid paying Private Mortgage Insurance (PMI), which is a monthly fee you pay to insure against default.
But it’s important to note that PMI is not an additional fee, rather your lender is covering the risk of lending money by charging you more in interest.
Understand Your Loan Options
The type of loan you choose will have a big impact on your monthly payments and the total amount you pay over the life of the loan. Make sure to research all of your options and work with a qualified lender who can help you find the best loan for your specific needs. Typical loans include:
- Conventional loans – With a down payment of at least 3 percent, these loans are among the most common type purchased by first-time home buyers.
- FHA Loans – These loans have lower down payment requirements and can be more affordable than conventional mortgages.
Don’t Forget Closing Costs
Besides the down payment, you’ll also need to prepare for closing costs. These are the fees lenders charge when you close on your home loan and can include everything from attorney fees to appraisal fees. The closing disclosure is a document that lays out all of the closing costs, and it is required by law to be given to you before your scheduled closing.
List Your Needs
Your reason for buying a home might be unique. If you’re planning to have kids soon, for example, a two-bedroom house probably won’t cut it down the line. When planning your new house, one important question is: What do I need this space to do? The answer can range from more storage to giving guests their bedrooms. So, create a list of your must-haves and wants and use it as a house hunting guide.
Work With A Real Estate Agent
Real Estate Agents are experts in the housing market and can help you navigate the process of buying a home. They have access to MLS (Multiple Listing Service), a database of all the homes on sale in your area. Working with an agent also gives you someone to turn to when things get tough, like during the inspection process.
Be Confident When You Submit An Offer
Never submit an offer unless you are sure you want the house and have the financial means. If the seller accepts your offer, you’re legally obligated to buy it. So, you could risk losing your deposit if you back out of the deal for any reason.
Hire An Inspector
An inspector can help you identify any issues with a home so that you can adjust your offer accordingly. During the inspection, you’ll meet with an inspector to go through each room in the house. The inspector will check for safety concerns, look out for things like water damage, and determine how old certain features in the home are. They can also give you an estimated renovation cost in case you want to make updates.
Stick To Your Budget
Don’t go over budget. Remember, you are planning to live in this home for the next few decades, so make sure the payment terms will not jeopardize your financial future.
Save Physical Copies Of Your Paperwork
You’ll receive a lot of paperwork when you close on the home, but it’s important to save copies of all your closing documents. These can come in handy if there are any issues with the title down the road. Regardless of whether you have cloud-based storage or not, it’s a good idea to have a physical copy of these documents in case of an emergency.
Don’t Stop Learning
Investing in homeownership education is a never-ending process. There are always new things to learn, so make sure to stay up-to-date on the latest trends and regulations.
If you are looking to buy a home, the first step is to find an agent who can help narrow down your search and determine what you need in your new house. Remember that there are many types of loans out there, so it’s important to do research before making any final decisions.
It’s also crucial not to go over budget or purchase something without thinking about whether or not it will fit into your future plans. If all this sounds overwhelming, consult expert advice. Find a real estate agent, mortgage broker, or loan officer to help advise you and review your paperwork before signing anything.