14 Essential Tips for First Time Home Buyers

Preparing to buy tips

1. Start saving early

Here are the main costs to consider when saving for a home:

• Down payment: Your down payment requirement will depend on the type of mortgage you choose and the lender. Some conventional loans aimed at first-time home buyers with excellent credit allow as little as 3% down. But even a small down payment can be challenging to save. For example, a 3% down payment on a $300,000 home is $9,000.

• Closing costs: These are the fees and expenses you pay to finalize your mortgage, and they typically range from 2% to 5% of the loan amount. You can ask the seller to pay a portion of your closing costs, and you can save on some expenses, such as home inspections, by shopping around.

• Move-in expenses: You’ll need some cash after the home purchase. Set some money aside for immediate home repairs, upgrades and furnishings.

2. Decide how much home you can afford

Figure out how much you can safely spend on a house before starting to shop.

3. Check and strengthen your credit

Your credit score will determine whether you qualify for a mortgage and affect the interest rate lenders will offer. Take these steps to strengthen your credit score to buy a house:

• Get free copies of your credit reports from each of the three credit bureaus — Experian, Equifax and TransUnion — and dispute any errors that could hurt your score.

• Pay all your bills on time, and keep credit card balances as low as possible.

• Keep current credit cards open. Closing a card will increase the portion of available credit you use, which can lower your score.

Mortgage selection tips

4. Explore mortgage options

A variety of mortgages are available with varying down payment and eligibility requirements. Here are the main categories:

• Conventional mortgages are not guaranteed by the government. Some conventional loans targeted at first-time buyers require as little as 3% down.

• FHA loans are insured by the Federal Housing Administration and allow down payments as low as 3.5%.

• USDA loans are guaranteed by the U.S. Department of Agriculture. They are for rural home buyers and usually require no down payment.

• VA loans are guaranteed by the Department of Veterans Affairs. They are for current and veteran military service members and usually require no down payment.

You also have options when it comes to the mortgage term. Most home buyers opt for a 30-year fixed-rate mortgage, which is paid off in 30 years and has an interest rate that stays the same. A 15-year loan typically has a lower interest rate than a 30-year mortgage, but the monthly payments are larger.

5. Research first-time home buyer assistance programs

Many states and some cities and counties offer first-time home buyer programs, which often combine low-interest-rate mortgages with down payment assistance and closing cost assistance. Tax credits are also available through some first-time home buyer programs.

6. Compare mortgage rates and fees

The Consumer Financial Protection Bureau recommends requesting loan estimates for the same type of mortgage from multiple lenders to compare the costs, including interest rates and possible origination fees.

Lenders may offer the opportunity to buy discount points, which are fees the borrower pays upfront to lower the interest rate. Buying points can make sense if you have the money on hand and plan to stay in the home for a long time.

7. Get Pre-Qualified and/or Pre-Approved

It can be tempting to jump right into hunting for the perfect house, particularly if this is your first time. It’s a really good idea to get a mortgage preapproval before you begin comparing properties.

If you’ve heard of a prequalification, it’s important to know the difference between that and a preapproval letter.

• Prequalification letter: A prequalification is an estimate of the amount of home loan you could get. It’s based on an informal evaluation of your income and other information.
• Preapproval letter: A mortgage preapproval is a document from a lender that tells you exactly how much loan money you can get. It’s based on your financial information, such as W-2s, bank statements and your credit score.

Some of the benefits of getting preapproved include:

• You know exactly what you can afford. You and your real estate agent know what you can afford once you have a preapproval letter in hand. This will help you shop within your budget.
• You can make a stronger offer. Sellers need to know that the buyer they choose can afford their home. A preapproval shows a seller that you have the money needed to purchase the home.
• You’ll experience fewer surprises. When you’re preapproved, you’re less likely to run into last-minute surprises or delays with your lender.

The bottom line? Get a preapproval before you start shopping for a home.

Contact us and let us connect you with a experience lender to walk you through the pre-approval process.

Home shopping tips

8. Choose a real estate agent carefully

A good real estate agent will scour the market for homes that meet your needs and guide you through the negotiation and closing process.

A real estate professional can help by:

• Showing you properties in your area that fit your needs and budget
• Attending showings with you to learn more about your priorities as a homeowner
• Helping you decide how much to offer for a property
• Submitting an offer letter on your behalf
• Helping you negotiate with the seller or the seller’s agent after you submit an offer
• Work closely with all parties involved with the transaction (lender, title company, inspectors, etc) to make sure the path to closing is smooth and stress free.
• Attending the closing with you to make sure that everything is in order with your sale

Remember, only a buyer’s agent will work on your behalf. Don’t rely on the seller’s agent to represent your best interests. Always choose a qualified REALTOR^® or real estate agent to help you buy a home.

Contact us today to see how we can guide you through the home buying process.

9. Pick the right type of house and neighborhood

Weigh the pros and cons of different types of homes, given your lifestyle and budget. A condominium or townhome may be more affordable than a single-family home, but shared walls with neighbors will mean less privacy. Don’t forget to budget for homeowners association fees when shopping for condos and townhomes, or houses in planned or gated communities.

Another option to consider is buying a fixer-upper — a single-family home in need of updates or repairs. Fixer-uppers usually sell for less per square foot than move-in ready homes. However, you may need to budget extra for repairs and remodeling. Renovation mortgages finance both the home price and the cost of improvements in one loan.

Think about your long-term needs and whether a starter home or forever home will meet them best. If you plan to start or expand your family, it may make sense to buy a home with extra room to grow.

Check out potential neighborhoods thoroughly. Choose one with amenities that are important to you, and test out the commute to work during rush hour.

Sit down and create a list of qualities you want and need in your new home. This will help you shop for homes more effectively and compare properties with less stress.

Fill out our Buyer Questionnaire to get a feel for this list and start thinking about your needs and wants.

10. Stick to your budget

A lender may offer to loan you more than what is comfortably affordable, or you may feel pressure to spend outside your comfort zone to beat another buyer’s offer. To avoid financial stress down the road, figure out a monthly payment amount that you’re comfortable with and measure your purchasing power from there.

Look at properties below your price limit to give some wiggle room for bidding in a competitive market.

11. Make the most of open houses

Online 3D home tours have become more popular amid the COVID-19 pandemic. These tours let shoppers virtually walk through a home at any hour and observe details that regular photos don’t catch. They don’t supply all the information in-person visits do — like how the carpets smell — but they can help you narrow the list of properties to visit.

Open your senses when touring homes in person. Listen for noise, pay attention to any odors and look at the overall condition of the home inside and out. Ask about the type and age of the electrical and plumbing systems and the roof.

Home purchasing tips

12. Pay for a home inspection

A home inspection is a thorough assessment of the structure and mechanical systems. Professional inspectors look for potential problems, so you can make an informed decision about buying the property. Here are some things to keep in mind:

• Standard inspections don’t test for things like radon, mold or pests. Understand what’s included in the inspection and what other inspections you might need.

• Make sure the inspector can get to every part of the house, such as the roof and any crawl spaces.

• Traditionally the buyer attends the inspection. By following the inspector around you can get a better understanding of the home and ask questions on the spot. If you can’t attend the inspection, review the inspector’s report carefully and ask about anything that’s unclear.

13. Negotiate with the seller

Your agent is your fiduciary and they can negotiate with the sellers on your behalf. You may be able to save money by asking the seller to pay for repairs in advance or lower the price to cover the cost of repairs you’ll have to make later. You may also ask the seller to pay some of the closing costs. But keep in mind that lenders may limit the portion of closing costs the seller can pay.

Your negotiating power will depend on the local market. It’s tougher to drive a hard bargain when there are more buyers than homes for sale. Work with your real estate agent to understand the local market and strategize accordingly.

14. Buy adequate home insurance