Five important things every first-time home buyer needs to know
It’s important to remember that purchasing a new home is probably one of the most significant investments you can ever make, regardless of your current financial status.
Homeownership remains a significant part of any American dream, as owning a home offers some level of social stability, comfort, privacy, and the pride that comes with ownership. When you get it right, homeownership can also give you some financial freedom, compared to always paying rent.
However, if you go about acquiring a new home incorrectly, you may subject yourself to a heavy financial burden which could be detrimental. There are several things every first-time home buyer needs to keep in mind to help them get their dream house. So, are you planning to purchase a new home for the first time? Here are some things you need to know.
1) You need to start saving early
Unless you already have a heap of cash worth millions ready for you to use, you’ll probably need some financial assistance to get your home. While there are various lenders and mortgage packages available to choose from, you need to do your part by saving for your down payment.
How much down payment you’ll be required to make will depend on the property’s value, the lender, and the type of mortgage you choose.
If you don’t have enough savings, you can start applying for loans earlier as well. It is best to first look for loan options designed especially for new or first-time buyers. Therefore, be sure to make necessary inquiries from your lenders to find out if they have a special package for first-time buyers. Most of such loans are available for buyers with credit scores as low as 3%. So, be sure you have the required credit score to ensure your loan application is approved.
Besides the down payment, you also need to save for other expenses like closing and moving expenses. The closing costs cover various fees you pay to finalize your mortgage and range from 2% to 5% of the initial loan amount.
Your move-in expenses may cover things like home repairs, connecting the needed utilities, furnishings, upgrades, and even moving day expenses. That is why it’s essential to start saving as early as possible to make your mortgage acquisition and home purchasing process much more manageable.
2) Be sure you’re ready to commit to a loan
If you need financial assistance to own your new home, then you need to be sure that you are ready to commit to a loan and the various payment conditions that come with it. Believe it or not, mortgages are one of the most significant financial issues plaguing many homeowners in America, and you need to be confident that you’re ready for that kind of financial commitment.
Currently, the average mortgage loan term ranges from 15 to 30 years, and even though many homeowners do not stay in their homes for that long, purchasing a home or going for a home loan is still a significant commitment. If you want to be sure of your readiness for this type of financial commitment, start by asking yourself some questions.
- Do you have a stable income? This is crucial as it makes it less difficult to pay your monthly mortgages or create a payment plan.
- Do you have an emergency fund? Setting aside at least three months’ worth of your monthly expenses in an emergency fund is advisable. This way, you can give yourself some form of a financial cushion to fall on and help you continue your loan payments even when your financial situation becomes unstable.
- Are you ready to commit to a property and a city for at least five years? Buying a new home usually means staying in the same property and city for at least five years. If your career or lifestyle makes it impossible for you to live in one place for at least five years, then you may want to reconsider going in for a mortgage.
If you answered no to any of the above questions, you might want to put your desire to own a new home on ice for now. But that should not stop you from saving up and preparing yourself for the right time to make such a financial commitment.
3) How much can you afford
After sorting out your credit score and getting pre-approved, a lender can sometimes give you more for the property than you want to pay for. However, just because a lender is ready to loan you $200,000 when you want $170,000 does not mean that you should go ahead and borrow that much. Unfortunately, many first-time homebuyers end up making this mistake only to regret it later on.
As mentioned earlier, you always need to make additional provisions to cover utilities, move-in expenses, repair works, and other expenses. Accepting a loan amount that is more than what you initially wanted can tie you down to a financial commitment you may not be prepared for.
Getting approval for a loan amount more than you requested does not mean you should start looking for a bigger house or one with more features than you need. Again, doing this may only leave you in an uncomfortable financial situation down the line.
4) You need to know where to look
After settling all your down payment and mortgage qualification issues, it’s time to go out and get started with your house searching. You want to waste as little time as possible finding your dream property, as the more time you spend searching, the more time you give other homebuyers the chance to find and pay for the properties you would’ve loved.
Like most searches, one of the easiest and the most convenient places to start searching is online. Today, finding reliable real estate websites is pretty straightforward. With so many websites, blogs, and other digital platforms available, you can browse through a host of potential real estate options from the comfort of your home. However, since you don’t want to waste too much time searching, there are a few things you need to do first.
Decide on what you want in your ideal home. Getting your mortgage approved in advance should give you a good idea of what your price range is, so you can limit your searches to options that fall within that range. This also helps you narrow down your searches even more, which means you’ll spend much less time searching.
In addition, having your mortgage pre-approved makes you a more ‘attractive’ buyer to home sellers. Therefore, they would be more than willing to give quick answers to your inquiries.
5) You’re going to want to use a realtor
If you’re new to the home buying business, it’s probably safer to work with a real estate agent, but you need to be careful to choose the right one. Good real estate agents know the market like the back of their hands, and they’ll save you loads of time and money while you search.
If you prefer a specific location, you need to go with a realtor with enough experience and knowledge about properties in that location. This way, not only will they be able to find your dream home as quickly as possible, but they’ll also prevent you from paying more than you should for the property.
Good realtors can assess the value of a property and can advise you on whether the asking price is worth it or not. With their wealth of experience, they can also help you to make the necessary bargains when you need to.
Photo by Soroush Karimi