There is nothing more exciting than buying a home for the first time. Whether you’ve been saving for years or looking to take advantage of homeownership programs, deciding to go about purchasing a home is always a big decision. However, the process is complicated and can often become overwhelming if you are not prepared. Let’s take a look at some tips for first-time home buyers so you’re well-informed for your purchase.
1. Check Your Credit
As a first-time homebuyer, your first step is to check your credit reports and scores to see where you stand. You can use Bankrate to keep an eye on your credit for free. You can also get a free copy of your credit report on AnnualCreditReport.com. Some banks also have tools to help you track and improve your credit. For example, Chase Credit Journey is available to any user.
Don’t check just one credit bureau’s report; you might get a false sense of confidence. Instead, get information from all three agencies (Equifax, Experian, and TransUnion) and keep a periodic eye on your activity.
The higher your credit score, the better the interest rate you’ll get on your mortgage. If your score can be improved, now is the time to work on it. Ideally, your credit utilization rate should be 30% or less.
Along the same lines, you should also work to pay off any debt.
2. Determine Your Budget
Mortgage calculators can help you determine your monthly payment, while calculating how much house you can afford based on your income is also important. Banks will generally want you to maintain a debt-to-income ratio below 36% to ensure that you will be able to repay your loan.
If you’re paying less than 20%, you’ll likely be responsible for private mortgage insurance (PMI), which can drive up your monthly costs.
When determining your budget, remember to calculate the invisible costs of homeownership, such as maintenance expenses and property taxes. Finally, be cautious of budget overruns.
3. Consider Your Needs and Wants
Consider what you want and what you need in a house. If your goal is to get into real estate investing, a duplex may be the right option for you, as opposed to something bigger.
If you don’t want to do lots of maintenance, a condo might be a good choice for you.
Once you’ve decided on the type of home that’s right for you, you can start prioritizing the features you want in your home based on your needs.
For example, you might focus on finding a house with extra bedrooms if you plan to have kids or need a home office. If you want to do some gardening, a large yard or a location near plenty of green space may be non-negotiable.
4. Get Pre-Approved
It can be tempting to jump straight into the search for the perfect home, especially if it’s your first time. But you should get pre-approved for a mortgage before you start comparing properties, so you know what house you can afford.
Here’s the difference between pre-qualification and pre-approval.
A pre-qualification letter gives you an estimate of the mortgage you can get. It is based on an informal assessment of your income and other information.
On the other hand, a mortgage pre-approval is a document from a lender that tells you exactly how much loan you can get based on your financial information. This can include W-2s, bank statements, and your credit score.
A pre-approval letter in hand will help you shop within your budget. Sellers need to know that the buyer they choose can afford their home. A pre-approval shows the seller that you have the money to buy the house.
5. Work with a real estate agent
Work with a real estate agent to find the perfect property. Real estate agents are local professionals who are experts in the home buying process and your local market.
A real estate professional can help you by showing you properties in your area that fit your needs and budget. They will also attend tours with you to learn more about your priorities as a landlord, and help you decide what price to offer for a property.
A real estate agent can also submit a letter of offer on your behalf, help you negotiate with the seller or seller’s agent after submitting an offer, and attend the closing with you to make sure everything is in order with your sale.
Remember that only a buyer’s agent will work on your behalf. Do not rely on the seller’s agent to represent your best interests. Always choose a qualified real estate agent to help you buy a home.
6. Make an offer
Your real estate agent will help you choose the amount of money you need to offer for the home, as well as any terms you need to ask for. Your agent will then present the offer to the seller, which will either acknowledge receipt of your offer or issue a counter-offer. You would then enter a negotiation until you come to an agreement or choose to give up.
Before submitting your offer, review your spending limit. This time, factor in closing costs (which can be between 2% and 5% of the price), driving expenses, and any quick fixes, machinery, and logistics you might need before you can move in.
Make sure you plan ahead. It’s anything but difficult to be trapped by higher or surprising utilities and different expenses in case you move from a rental to a bigger house. You can ask for energy bills from the previous year, for example, to get a fair idea of normal monthly costs.
In addition, when looking at your budget, don’t overlook hidden costs, such as home inspection, home insurance, property taxes, and homeowners association fees. You can ask for a full structural survey or homebuyers report. A full structural survey is more expensive, but it goes into much greater detail reviewing all possible problems.
If you agree, you will make a good faith deposit and the proceeding will then turn to escrow. Escrow is a brief period (often around 30 days) where the seller takes the house off the market with the authoritative desire that you get it, provided you find no significant issues when you examine the house.
However, beware of gazumping. Gazumping is when you’ve had one offer accepted on a property and the seller accepts another offer, potentially after you’ve already started spending money on things like lawyers and surveyors. Home purchase insurance protects you against the practice of gazumping.
Featured Image: Megapixl
