Buying a home is never easy, much more if you’re a first-time home buyer. At Central on Point, we know a lot about home buying. Here’s our top-ten list for first-home buyers:
It’s common to put 20% down, but many lenders now permit much less, and first-time home buyer programs allow as little as 3% down. But putting down less than 20% may mean higher costs and paying for private mortgage insurance, and even a small down payment can still be hefty.
Play around with this down payment calculator to help you land on a goal amount. Some tips for saving for a down payment include setting aside tax refunds and work bonuses, setting up an automatic savings plan and using an app to track your progress.
Before you start shopping for a house, you need to know what you can afford, so your mortgage banker goes to work for you even before your Realtor. Your ability to purchase a home, your understanding of the process, and your short- and long-term satisfaction with the experience will be influenced enormously by your loan officer / mortgage banker.
There are lots of mortgage options out there, each with their own combination of pros and cons.
The amount you put down also affects your monthly mortgage payment and interest rate. If you want the smallest mortgage payment possible, opt for a 30-year fixed mortgage. But if you can afford larger monthly payments, you can get a lower interest rate with a 20-year or 15-year fixed loan.
You’ll be working closely with your real estate agent, so it’s essential that you find someone you get along with well. While it may be tempting to work with a friend or family member who has a real estate license, it’s even more important to find a Realtor who has the skills and experience to serve your particular needs.
He or she will have invaluable experience and knowledge about the neighborhood and local matters such as schools, new developments, and any issues.
You may assume you’ll buy a single-family home, and that could be ideal if you want a big yard or a lot of room. But if you’re willing to sacrifice space for less maintenance and extra amenities, and you don’t mind paying a homeowners association fee, a condo or townhouse could be a better fit.
But even if the home is right, the neighborhood could be all wrong. So be sure to:
It’s easy to look at properties that meet your current needs. But if you plan to start or expand your family, it may be preferable to buy a larger home now that you can grow into. Consider your future needs and wants and whether the home you’re considering will suit them.
Purchasing your first home is one of the biggest financial decisions you will make, and you want to be prepared. Look at properties that cost less than the amount you were approved for. Although you can technically afford your pre-approval amount, it’s the ceiling — and it doesn’t account for other monthly expenses or problems like a broken dishwasher that arise during homeownership, especially right after you buy.
Shopping below your pre-approval amount creates some wiggle room for bidding. Stick to your budget to avoid a mortgage payment you can’t afford.
When you’re touring homes during open houses, pay close attention to the home’s overall condition, and be aware of any smells, stains or items in disrepair. Ask a lot of questions about the home, such as when it was built, when items were last replaced and how old key systems like the air conditioning and the heating are. There simply are no stupid questions when it comes to the purchase of a home. If other potential buyers are viewing the home at the same time as you, don’t hesitate to schedule a second or third visit to get a closer look and ask questions privately.
The last thing you want is to close escrow, get the keys, and find that owning your new home comes with surprises.
Along with your down payment, you’ll also need to pay for closing costs. If you’re a first-time home buyer, you may be wondering how much it costs to close on a house. On average, closing costs are about 3 – 4% of the purchase price of your home. Your lender will give you a specific number so you know exactly what to bring on closing day.
Once you’ve saved for your down payment and budgeted for closing costs, you should also set aside a buffer to pay for what will go inside the house. This includes furnishings, appliances, rugs, updated fixtures, new paint and any improvements you may want to make after moving in.
A lot can be up for negotiation in the homebuying process, which can result in major savings. Are there any major repairs you can get the seller to cover, either by fully handling them or by giving you a credit adjustment at closing? Is the seller willing to pay for any of the closing costs? If you’re in a buyer’s market, you may find the seller will bargain with you to get the house off the market.
Let’s say you found the home you want and can afford. Since you’re already pre-approved for a loan, you’re ready to make an offer. If you’re a first-time home buyer, it may be hard to know how much you should offer.
Ask your agent to help you make sure your offer is competitive but also within your budget and the home’s value. Be careful not to make an impulsive offer that’s higher than you can afford just to knock out the competition. A personalized letter might help your offer stand out among multiple bids in a hot market.
After your offer is accepted, you’ll pay for a home inspection to examine the property’s condition inside and out, but the results will only tell you so much.
You won’t be able to finalize your home purchase without homeowner’s insurance, so start early and, as mentioned above, ask questions and read the fine print.
Look closely at what’s covered in the policies; going with a less-expensive policy usually means fewer protections and more out-of-pocket expenses if you file a claim. Also, flood damage isn’t covered by homeowners insurance, so if your new home is in a flood-prone area, you may need to buy separate flood insurance.
Make sure you understand what is and is not covered by the policy, what the deductibles are, and what, when, and how payments are to be made. If your home is in a flood or geologic hazard zone, you may need to purchase an additional policy to cover such losses.
Trying to time the market perfectly is impossible. Find the home that is right for you. Waiting may cause you to miss out on lower rates, lower home prices or even that perfect home. So, do your research, follow the tips mentioned above and pull the trigger!
If you need financial advising or you want to schedule a call, please contact us, we are ready to help you today.