Buying a house for the first time can be a fun and enjoyable process. The key is to take it step by step. Each step serves as a foundation for the next. Save enough and have a clear idea of your financial picture, and you have a great deal of freedom moving forward. Still dealing with debt and being unsure of what kind of loan you can get makes for a stressful time figuring out what you can even afford. Here are some tips for first time home buyers that can help you get each step in order:
- Pay Off Your Debt and Save Up When Buying a House for the First Time
It’s much more difficult to buy a home when you’re still dealing with other debt. House payments will be more expensive than most monthly rental fees, so you’re increasing the burden on your savings. Paying off debt is even more important than saving in many circumstances.
That said, saving up is also very important. Buying a house for the first time without any room for error is a huge risk. Something unexpected will always occur. Having extra saved up can help you handle this confidently. It also helps you still pursue your dream even if unexpected circumstances occur. If there’s a job loss or medical emergency, you don’t want that to cost your first chance at a home. An emergency fund should be able to cover anywhere from 3-6 months of your expenses.
Once you’ve paid off your debts and saved a bit, it’s important to stay debt-free. It’s tempting to use that new emergency fund to splurge. Be disciplined and exercise some willpower. Understand that anything you take out of that emergency fund will make it less likely you get your ideal home.
Too much new debt can also impact your mortgage approval and loan conditions – you want these to be in perfect shape, so avoid that debt!
- Know What’s in Your Price Range
One of the most important tips for first time home buyers is to get yourself prequalified for a loan. This will help you understand what price range you can realistically look at. It also begins to give you an idea of what potential loan terms you may face.
Getting prequalified doesn’t mean actually taking out the loan, but it outlines the shape of what loans you’ll be able to get.
Understand what disposable income you have, and how much can be spent on a mortgage. Factor in your down payments. The higher a down payment you can afford, the more favorable your loan terms may be. Taking a lighter loan means the bank is taking less of a risk on you, after all.
Some first time home buyers end up shouldering monthly payments that are higher than they can afford. You need to know you can afford mortgage, insurance, taxes, and any homeowner association fees.
- Down Payments are Crucial
The ideal solution means you can pay for the whole home up front. This is rarely the circumstance someone finds themselves in, though. Can you pay 20% or more as a down payment, though? Doing this protects you from having to pay for private mortgage insurance – typically an extra 1% of the total loan value that adds to your monthly payments.
A 20% down payment is where you should aim. If you can’t quite get there, that’s OK, but it doesn’t mean you have to bit on any old mortgage option. As a rule of thumb, the shorter the mortgage, the more money you’ll save. This is because you’ll end up having to pay less interest.
AVOID THE FOLLOWING:
Adjustable-Rate Mortgages are initially low interest, but don’t overlook that “Adjustable-Rate” is in the name. Lenders can very quickly change those rates if they face increased risk. You shouldn’t have to shoulder their risk.
FHA Loans require very little down, but apply private mortgage insurance across the loans entire lifespan. That adds up to thousands extra.
VA Loans should make veterans’ lives easier. They allow them to get a home with no down payment. Unfortunately, they include fees, higher interest rates, and you can end up owing more on a home than it’s worth if the market changes.
- Research Neighborhoods, Not Just Homes
The neighborhood you move into helps shape your life and the life of your family. Are people there happy? Do they have to deal with traffic? Is there a lot of noise?
If you’re buying a home build from a home plan or in a subdivision, inquire with neighbors who have the same floor plan what they do and don’t like about their home. What did they wish they knew before they moved in? These can give you insights into buying your home that can only be earned by living in it.
Look into crime rates, school quality, and other factors that may influence your choice. Do you want to be close to hiking areas? A library? Shops and small businesses?
- Commutes Matter
You may imagine that an ideal home that’s 45 minutes from work is a better choice than a good-but-not-perfect home that’s 25 minutes from work. You’ll quickly find out that traffic jams or accidents mean you have to give yourself an hour to get there just in case, whereas the closer home might only mean you have to give yourself a half hour.
That adds up. That means 40-60 minutes a day less with your family, just because of a commute. Up to an hour a day less of relaxation time when you can shake stress off and do what you want. That’s more than an extra work day worth of commuting time every two weeks.
Give commutes a high priority when buying a house for the first time. It’s easy to say you can handle a commute when it’s just an idea in your head. If it turns out you hate a longer commute after you’ve bought your home, there’s not much you can do about it.
Factor this in when it comes to school commutes and any other regular commutes as well.
- Go to Open Houses!
As you make your search more focused go to open houses in neighborhoods you like. It doesn’t matter if you don’t think the home’s for you. You can learn a lot about what you do and don’t like about an area by attending an open house.
This will also give you a better idea of why homes are priced the way they are. You’ll develop a better eye for how quality, materials, design, and neighborhood all factor into the price. This will help you better identify how each of these contributes to the prices of the homes you do want.
- Factor in Energy Savings
Energy efficient homes are a good investment when you’re buying a house for the first time. Energy savings can amount to hundreds of dollars a year. That adds up to thousands in just a few years. This will also help homes hold and increase their value.
In the future, energy efficient improvements will be the norm. Houses lacking them could be severely limited in terms of their re-sale. Chances are good that your first home won’t be your forever-home. That’s good! It usually means you move into homes that are in a new location because of a good job offer, or that are bigger for a larger family.
Energy efficient design, features, and materials will not only save yearly costs, they’ll also ensure that you get a better price if and when you do sell in the future. They’re one of the best investments you can make in a home, and they also help make a home more comfortable while you’re living in it.
- Your Offer Should be Competitive
Buying a house for the first time means you’ll be tempted to look for great deals. You can find them, but it takes expertise, and it means not undercutting or insulting a seller. Your real estate agent will be very helpful here.
If you perpetually make low offers, you’ll regularly miss out on the homes you want. At the same time, you don’t want to get frustrated, make too high an offer, and end up paying way too much. A real estate agent has access to information about how similar homes in the same neighborhood sold, how this stacks up against housing market changes, and what it means in terms of how long the home’s been on the market.
They’ll then offer you a few strategies for how you want to play it. They may favor one in particular. You don’t have to take every piece of advice, but listen and respect their experience and ability.
Remember that many homes have great meaning to their owners. They might not always sell on highest offer alone. If you’ve made a personal connection with the owner, express to them face-to-face, through a call, or via letter exactly why you want the home and how you picture caring for it. Sometimes, they’ll sell to someone who offers slightly less, but who shows great care for a home where they’ve spent years of their life.
- Factor in Closing Costs When Buying a House for the First Time
Don’t overlook closing costs. These can include your appraisal, home inspection, credit report, attorney, and insurance. They should stay under 5% of the price of your home, and more typically range around 3-4%.
That sounds small, but keep in mind that on a $200,000 home, 4% means $8,000.
Lenders should make these closing costs clear to you and you should be well aware of them before closing day.
All in all, have fun with your first home buying experience. There will be stressful points, but if stress is all you feel, back up, solidify your foundation, and then move forward again. That might mean taking a few extra months to save more. That might mean going to a few more open houses so you feel more confident in your choice. It might mean making a more competitive offer so you don’t miss out on an ideal home in a good situation.
Remember that buying a house for the first time is a wonderful step that gets you closer to the life you want.