First Time Home Buyers Guide: Getting the Process Right in 2024
Since the pandemic, the housing market has seen its fair share of ups and downs but in 2023, things finally started showing signs of stabilization. While the market remains predominantly more favorable to sellers due to a continued shortage of houses, many experts are predicting that over the course of 2024, the market will become more balanced and in most parts of the country, this will certainly benefit buyers.
So, with all signs pointing to a healthier housing market, this will no doubt mean that more prospective home buyers will be finally taking the leap into full blown homeownership. This can add a little more stress to the process since you might find yourself competing with other buyers, but you can improve your chances of coming out on top simply by putting in the work early on to help ensure that you get the process right the first time around.
If you’re looking to purchase your first home in 2024, then here’s what you need to do to improve your chances of getting the home you want.
#1: Ask Yourself – Why Do I Want To Buy a Home?
People buy houses for a variety of different reasons. It is important to carefully consider your exact reasons for wanting to buy a house. Believe it or not, if you are not clear in your overall objective, then you could find yourself regretting your purchase, and a home is anything but a minor purchase. Before you start your home search, define your personal and financial goals, and then ask yourself how buying a home will help you reach them.
#2: Review Your Credit
Every adult should know by now that their credit score and history can weigh heavily on their mortgage approval chances, as well as what their interest rate will be. The higher your score, the better your mortgage rate will be. So, getting copies of your credit reports from the big three credit bureaus early on is essential. This will allow you to review all the included information and give you time to clean up any reporting errors or incorrect information.
It is important to do this as early on in the process as possible because it can take time for any changes to be reflected in your credit score. It is also important to avoid opening any new lines of credit or missing any payments before you apply for your mortgage because that new line of credit or missed payment will hurt your chances of approval.
#3: Determine Your Budget
One of the most important things that you should do early on in the process is to determine your housing budget. Unfortunately, this is something that so many first time home buyers don’t do and that’s why so many find themselves in financial trouble not long after closing on their homes.
Determining your housing budget will let you know how much home you can comfortably afford. For most people, this number is much lower than what the banks are telling them they can get approved for. When determining your budget, you need to look at the whole homeownership picture, not just your down payment and monthly mortgage amount. Make sure you factor in other expenses to determine what you can realistically afford long-term, such as homeowners association fees, average maintenance costs, utilities, other debt obligations, insurance costs, and all your other daily living expenses.
#4: Save As Much Money as Possible for Your Down Payment
While there are some mortgage products that you might be able to get approved for with no money down, there can be considerable downsides to taking this approach. One of the biggest is that putting no money down can result in a higher interest rate. It will also result in you having to pay for private mortgage insurance (PMI) every month, and this will make your payment even higher.
For the best result, try to save as much money as possible for your down payment. Ideally, you want to have at least 20% of the home’s selling price as your down payment because this will allow you to avoid paying every month for PMI.
#5: Get Pre-approved for a Mortgage
Getting preapproved for a mortgage is one of the smartest moves you can make because once you are preapproved, you will have stronger negotiating powers when competing against buyers who haven’t been preapproved. It will also give you a better handle on how much you can afford. To help ensure that you get the best mortgage terms, shop around with at least three lenders or a mortgage broker and compare their offers.
#6: Hire an Experienced Real Estate Agent
An experienced real estate agent can be an extremely valuable resource and a dedicated partner in your search for the perfect home. You want to choose an agent who has experience not only in the area where you want to buy, but also in handling transactions involving the type of property you want to purchase.
A good agent will have a network of industry professionals that they regularly work with that can help save you time and money on the many different facets of the process, such as home inspectors, title and insurance company agents, local contractors, appraisers, loan officers, and others. Your agent can protect you against common pitfalls like paying too much for a home or choosing a home that will ultimately be a money pit.
#7: See Multiple Homes in Person
Since Covid, virtual home showings have become more common, but these photos and/or videos are often doctored to make the home look better than it actually does. Never purchase a home sight unseen or only viewed on a screen; you must see it in person if you want to get an accurate look at it. When looking for your perfect first home, make sure you see multiple homes. There’s no limit to how many you can see, and you never know if the next one will be “the one.”
#8: Put in Your Offer
When you find your ideal home and it fits within the budget you have set for yourself, then it’s time to make an offer. This is another area where your real estate agent will prove to be valuable. Your agent will advise you on what they would consider to be an attractive offer. This amount should be within your budget but also attractive enough to satisfy the seller.
#9: Have the Home Inspected
Once your offer is accepted, you will need to have the home inspected to help determine if it has any potential issues that will need to be resolved before closing. If major problems are discovered, then you can negotiate with the seller to determine how they want to resolve them. Usually either the seller will pay for the repairs or they will agree on a lower purchasing price. In most states, the inspection needs to be completed within 10 to 14 days of the purchase agreement being signed.
#10: Secure Your Home Loan
Although you were preapproved for your mortgage early on in the process, this is not the same thing as your loan being 100% guaranteed. You will need to keep your finances and credit in line from the preapproval all the way through to the final underwriting approval to keep your rate and loan approval. If you opened a new line of credit or changed jobs since your preapproval, then the lender may reject your final approval.
#11: Do a Final Walk Through of the Home
The final walk through is your last chance to inspect the home and property before you close on your mortgage. This is when you will make sure that any repairs the seller promised to make were actually made. This step is very important because after you close, any existing problems become your responsibility.
#12: Close on Your Home
If everything is cleared and your lender informs you that your loan is clear to close, then the last step in the home buying process is to close on your home. This is when you will sign all the paperwork, hand over your down payment, and take ownership of the keys to your first home.
Your lender will provide you with a closing disclosure statement three days before your closing date. This disclosure will outline all the details of your loan, including the monthly payment, loan type and term, interest rate, loan fees, and how much money you must bring to closing. If you discover anything that doesn’t look right, such as an interest rate that is higher than what you were told, then it is important to notify the lender immediately.
Buying your first home is just as exciting as it is overwhelming. After all, it will most likely be the largest single purchase in your life up until that point. Being prepared is the most important thing you can do to help ensure that the process goes as smoothly as it possibly can. So, start preparing as early as you can and remember these steps, so you will be ready for every stage before they happen.
