Buying a first home is exciting but it can be incredibly confusing as well. You may be getting all sorts of well-meaning advice from parents and friends who consider themselves property experts. Sometimes it can be difficult to know what information to take on board and what to kick to the curb.
That’s why we’ve put together some professional tips to help you navigate the buying process. Remember, buying a home is the biggest financial decision you’ll ever make. So take your time and do your research, you want to make sure you get it right!
1. Aim for a 20% down payment
According to Realtor.com’s 2020 Housing Market Predictions, millennial mortgage applications will surpass an unprecedented 50% this spring. How can you give yourself an edge on the competition? Brokers and lenders will look more favorably on your home loan application if you have a solid 20% down payment in your bank account.
Not only will you save thousands of dollars in interest over the lifetime of the loan, you’ll avoid private mortgage insurance. It’s worth saving for a bit longer if you can.
2. Think about what you need
We’re all suckers for gorgeous décor but you need to weigh up the pros and cons before you put in an offer. Is this house really what you need? If you get it wrong, you could regret your decision for years to come. It pays to go house hunting with a list of all your must-haves and nice-to-haves in your pocket so you’re not swayed by designer furniture. That won’t be staying with the house!
The good news for first time home buyers is that mortgage rates will remain low this year, likely somewhere between 3.7% and 3.9% say economists, so you’ll be able to buy more house than you would have otherwise.
3. Know your credit score
A low credit score can make it incredibly tough to get approved for a mortgage or get a decent interest rate. Bank of America advises first time home buyers to review their credit before starting the process:
“Check your credit report and credit score with any of the 3 major credit reporting agencies: Experian, TransUnion, and Equifax. If you find any mistakes that need to be corrected, addressing these issues early will put you in a better position when it’s time to buy a house.”
4. Get pre-approved
Some say house hunting without pre-approval is like going to the mall without your wallet. They’re right, it’s a waste of time. Nowadays it’s super easy to call up a bank or broker and get pre-approved. You may be able to buy a more expensive home, or you may have to lower your expectations. Either way, you’ll know for certain how much you can afford.
Investopedia agrees it’s better to be realistic, “You may think you can afford a $300,000 place, but lenders may think you’re only good for $200,000 depending on factors like how much other debt you have, your monthly income and how long you’ve been at your current job.”
Pre-approval is NOT the same as getting pre-qualified. Pre-qualification is a quick process that only requires giving over basic information and is practically useless when you want to buy a home. Get pre-approved by a lender, not pre-qualified.
5. Always work with a qualified professional
Why? Because hiring an experienced pro can save you a lot of anxiety and confusion. You want someone who knows the market you’re buying in like the back of their hand and who can answer your questions in a timely manner.
6. Get a home inspection
Want to know you’re not buying a lemon? Then don’t skimp on a home inspection. Many first time home buyers fall into this trap because they want to save money. Then they find out the home is riddled with problems that will cost them thousands of dollars to fix.
You may end up paying for a home inspection for each home you make an offer on. But it’s worth it just for your peace of mind alone, and can save you a lot of grief in the future.
7. Buy within your means
It can be tempting to take on a bigger mortgage to get the home you want. Don’t stretch yourself if you feel uncomfortable with it, because you never know what can happen. In every case, you’re almost always better off sticking to your budget and walking away. There will be other houses that come up that you like, ones that won’t give you sleepless nights in the years to come.
8. Be realistic
Remember that this is your first home. A dream home can take many years and several home purchases to achieve. For now, you need to be prepared to make adjustments to your wish list. Do you really need a two-car garage or a huge back yard?
Also don’t exclude homes because they need work. If you can afford a home that meets 75% of your criteria, and you can add the other 25% through redecorating, then it should be a top contender.
9. Know the hidden costs
Buying a house has a lot of hidden costs that can catch first-time buyers unaware. Many sail close to the wind and then struggle when it comes time to move in. From furniture purchases to moving company charges to unexpected repairs, it’s a good idea to have cash in reserve before you make your final purchase.
A general rule of thumb is to budget 1% annually of the home’s purchase price for utilities, maintenance, and repairs.
Buying a first home is a big step. You need to be sure you’re ready both mentally and financially before you take the plunge. Keep these tips in mind throughout the process and you’ll be well-armed for the journey ahead. Give us a call at 855-205-0599 and we would be happy to guide you through the process!