Buying a home for the first time is a big step that requires careful preparation. To set yourself up for success, start saving early for your down payment and closing costs, boost your credit score to get better mortgage rates, get pre-approved for a loan, educate yourself on the process, compare mortgage options, factor in additional fees, define your home must-haves, work with an experienced agent, and consider commute times and neighbourhood amenities that impact long-term costs and happiness.
Key Takeaways
- Get Pre-Approved for a Mortgage: Determine budget and lock in competitive rates
- Assemble a Knowledgeable Team: Hire a buyer’s agent, lender, attorney, inspector
- Define Must-Have Features: Identify needs before viewing homes
- Examine Neighborhood Closely: Research noise, safety, zoning, development
- Hire an Inspector: Uncover property issues impacting offer terms
- Review Seller Disclosures: Understand true condition pre-purchase
- Prepare Finances Beforehand: Improves rates/terms and bargaining power
- Make a Strong Competitive Offer: Price right, limit contingencies
- Account for Closing Costs: Typically 3-5% of purchase price
- Conduct Final Walkthrough: Confirm property condition before closing
Tips for First-Time Home Buyers
1. Educate Yourself on the Process
Delving into the world of homeownership requires arming yourself with knowledge. Start by exploring mortgage options like fixed-rate loans offering stable payments or adjustable-rate mortgages with potentially lower initial rates but fluctuating over time. Consider government-backed FHA loans with lower down payments or conventional loans typically requiring 20% down. Understand closing costs, property taxes, homeowners insurance, and potential maintenance expenses to factor into your budget.
The buying process involves getting pre-approved, finding a realtor, house hunting, making offers, negotiating, inspections, and finally, closing the deal. Remember, knowledge empowers you to negotiate confidently, ask informed questions, and make sound decisions throughout your home buying journey.
2. Start Saving Early
The typical down payment is around 10-20% of the home price. With today’s home prices, that can mean over $50,000 needed! Start by opening a high-yield savings account and setting up automatic transfers from each paycheck. Even small amounts add up over time. Aim to save at least 5% of your income.
Having at least a 20% downpayment plus a couple months expenses will put you in a strong place to get approved for a mortgage loan with better rates. The more you can put down, the better!
Also read: How Much does it Cost for a Home Inspection
3. Boost Your Credit Score
Your credit score impacts not just getting approved for a mortgage, but also the interest rates you’ll pay. About 6 months before you plan to buy, check your credit report and do what you can to improve your score. Pay all bills on time, keep credit card balances low, and correct any errors on your report.
Scores above 740 get the best rates, so wait if needed until your score reaches that benchmark. Those extra months could save thousands over your loan.
4. Get Pre-Approved for a Mortgage
Getting a mortgage pre-approval letter will make your offers more attractive to sellers. They’ll know you are ready to move quickly once your offer is accepted!
Pre-approval provides a loan estimate showing your rate and maximum purchase amount. Gather all financial statements and talk to lenders to choose the right loan type and get the green light.
With pre-approval ready, you’ll know just how much house you can afford. That way you won’t waste time looking at homes way outside your range!
Also read: The Best Companies That Buy Houses for Cash
5. Compare Mortgage Rates and Fees
Shop around with several lenders to find your best rate. Ask about loan types like conventional, FHA, and VA loans. Each option has its own eligibility rules and costs. Rates and fees vary quite a bit between lenders.
Get rate quotes with and without points to choose the most cost-effective combo for your situation. Points lower the rate but have upfront costs. Evaluate based on long-term costs over the full loan term.
6. Factor in Closing Costs
Beyond the down payment, buying a home requires many upfront closing costs such as:
- Home inspection fees – $400+
- Home appraisal fee – $350+
- Loan origination charges – 1-2% of loan amount
- Title searches, insurance, etc. – $1000+
Closing costs typically total 2-5% of the purchase price.
Save up enough to cover these so you don’t drain all your funds on the down payment alone. FHA and VA loans offer particular advantages here allowing the seller or lender to pay many closing fees for you.
7. Know Your Needs and Wants
Create a home wish list with must-have features and nice-to-have extras. Define priorities like:
- Bedrooms/bathrooms
- Garage/outdoor space
- Updates and condition
- Commute distance
- Neighbourhood amenities
- Schools
Rank these from essential needs to negotiable points. This keeps you from overspending on features that don’t really impact your happiness long-term.
Also read: Where is the Most Expensive Places to Live in the US in
8. Work with a Buyer’s Agent
A buyer’s agent represents your interests in the home buying process. The seller pays their commission fees so it costs you nothing! Their expertise helps in so many ways:
- Navigating your local housing market with current info on trends and competition
- Accessing MLS home listings sometimes before they go public
- Scheduling and attending home tours on short notice
- Advising you on fair market values and making competitive offers
- Negotiating offers, repairs, and the purchase agreement
- Managing deadlines and paperwork through closing
First-time buyers who use an agent feel way more confident and successful with home shopping and purchasing! Talk to friends for recommendations. Interview several agents before choosing one you really click with.
9. Consider Location
While you may be tempted by a large newer home far outside the city, consider:
- Is the commute manageable long-term? Beyond time also factors in gas costs.
- Will you pay more for home insurance and repairs in rural areas?
- Does the home retain value long-term compared to more central areas?
Run budget estimates factoring in these location-based costs over 5 to 10 years. Finding the right balance makes homeownership more sustainable.
10. Don’t Overlook Fixer-Uppers
While move-in ready homes are easiest, fixer-uppers can be a smart play for your first purchase. The already lower list prices allow room to make repairs and custom updates just how you like.
Have an inspector assess any major system or structure issues upfront. Many surface-level updates you can DIY over time like:
- Painting
- Landscaping
- Swapping light fixtures
- Installing new floors
Tackle bigger overhauls slowly while building home equity for your next purchase. Get contractor estimates to ensure costs align with your budget.
11. Do Your Research
Once you start touring homes, do some homework into each one that catches your eye before you decide to make an offer.
- Check crime rates, school ratings, and infrastructure plans for the neighborhood
- See what similar homes nearby have sold for recently to establish fair pricing
- Look into state and local first-time home buyer programs that offer help with down payments or closing costs
Thorough research sets realistic expectations so there are no costly surprises later in the process.
12. Don’t Be Afraid to Negotiate
The list price is simply a starting point for negotiation. Home values involve a range based on market data, conditions, and financing terms. In a competitive market you still have wiggle room.
As a first-time buyer, highlight areas where sellers would welcome your offer:
- Cash versus financing terms
- Flexible timing for a quicker close
- Waiving certain repairs
- Higher earnest money deposit
A strategic counteroffer can make an otherwise “less attractive” offer get accepted!
13. Get a Home Inspection
Home inspections help uncover major issues invisible without an expert eye. Inspectors check everything from the structure, to systems like electrical and plumbing, to potential environmental hazards like mold.
While tempting to skip for a quicker sale, inspections bring peace of mind. They also give you information to negotiate credits or repairs. Inspection fees run $300-$500 but offer huge risk reduction.
14. Review All Paperwork Carefully
You’ll sign a stack of documents during the buying process. Carefully go through every page at each step. Key items:
- The pre-approval letter and initial loan estimates from your lender
- The purchase agreement contract
- Disclosure forms for the home/neighborhood
- The final loan terms and settlement statement
Ask your real estate agent or lawyer to explain each item and obligation. Erring on the side of caution prevents legal issues later.
15. Get Homeowners Insurance
Homeowners insurance covers damage and liability once you purchase the home. Securing a policy early shows your reliability to lenders as well.
Shop insurance rates 30 days before closing. Compare coverage for your property value, assets, possible risks like floods/hurricanes depending on your area. Set up payments to auto-renew annually.
16. Plan for Moving Expenses
Beyond the home purchase itself, don’t underestimate moving costs. Budget for:
- Renting a moving truck or hiring movers
- Packing materials like boxes, tape, and bubble wrap
- Storage fees if transitioning over time
- Address change admin like post office paperwork
- New furniture/decor – consider DIY options to save
Many first-time buyer programs help with some of these as well.
17. Maintain Your Home
Ongoing maintenance protects your valuable investment. Expect yearly costs for larger recurring expenses like:
- HVAC tune-ups
- Roof repairs
- Exterior/interior painting
- Driveway sealing
Also budget monthly for inevitable surprises like appliance repairs. Reviewing seller disclosures gives a roadmap of upcoming bigger projects too.
18. Budget for Homeownership Costs
Beyond the mortgage itself, keep these new homeowner costs in mind:
Fixed Costs
- Home insurance
- Property taxes
- HOA fees
Flexible Costs
- Utilities like electric, water, garbage
- Internet/cable/phone
- Furnishings
- Renovations/repairs
Overestimate these when budgeting, at least while you adjust during the first year. Expect 10-30% higher than your prior renting/living situation.
19. Get to Know Your Neighbors
Don’t underestimate the value of good neighbors! Introduce yourself right away:
- Share contact info in case of emergencies/suspicious activity
- Discuss things like parking, yard boundaries, pet areas in advance
- Consider co-hosting a small gathering so neighbors can connect
This gives everyone peace of mind plus builds community to rely on. You’ll likely swap home tips and contractor referrals too over time.
20. Enjoy Your New Home
Amidst the flurry of mortgage paperwork and renovation projects, be sure to celebrate this milestone! Building equity and customising your space feels incredibly rewarding. Achieving the dream of homeownership builds confidence to tackle other big life goals ahead.
Frequently Asked Questions (FAQ)
Most lenders look for a minimum score of 620 to qualify for an FHA loan or conventional loan. Scores above 740 get the best interest rates and terms.
Typical options include personal savings, family gifts, borrowing from your 401K through a loan or hardship withdrawal, pawning assets or taking hardship withdrawals. Bank programs like Down Payment Assistance grants help eligible buyers too.
Closing costs include lender origination fees, title insurance, escrow deposits for taxes and insurance, appraisal fees, credit report charges and more. Budget 1-5% of the home’s purchase price. Closing costs for a $300K home could total $9K – $15K.
Yes, most lenders require 2 years of steady self-employment income documented on tax returns. Stable revenue and assets are key to approval.
Sellers are under no obligation to fix everything noted in the inspection. Most sellers agree to credit the buyer a set dollar amount at closing versus actually making repairs prior to closing. Be reasonable in negotiations.
Buyers can terminate for specific reasons laid out in the purchase contract like if major issues surface during inspection due to misrepresentation by the seller. But you can lose your earnest money deposit.
Closing typically takes 30-60 days depending on market conditions. Quick closings run 3-4 weeks while VA loans often require 45+ days.
The best advice is to be patient, do your research, get pre-approved, know your budget, hire a real estate agent that specialises in first-timers, and inspect homes thoroughly before buying. Getting educated on the process and costs well in advance makes for a smoother purchase.
The typical first-time home buyer puts between 3-10% down according to surveys, although 20% down is recommended to get the best loan terms and avoid private mortgage insurance (PMI). Saving up for a 20 percent down payment plus closing costs takes disciplined budgeting for most.
Letting your real estate agent and lender know it’s your first purchase allows them to provide extra guidance and hand-holding throughout the complex documentation and events involved. There are also special first-time home buyer programs available that include grants, lower interest rates and lower down payments from certain state and federal agencies.
California offers some of the best first-time programs in the country including the California Housing Finance Agency with down payment and closing costs assistance loans. Their Mortgage Credit Certificate allows first-timers who qualify to claim a federal income tax credit each year based on mortgage interest paid. California also allows use of 529 college savings funds (up to $10k+) towards a first home purchase without withdrawal penalties.
