A First-Time Buyer’s Guide to Spring Home Shopping
It’s been a long, hard road for first-time home buyers, but the market finally seems to be shifting to the point that more buyers will likely be hitting the streets this spring in search of their first homes. And why not? Being a first-time buyer opens the doors to tax breaks and streams of other financial benefits that come with owning a home.
That said, there’s more to buying a first home than many prospective buyers might expect. So, here’s everything a first-time buyer should know about buying their first home this spring.
Who Qualifies as a First-Time Buyer?
Of course, if you’ve never purchased a home before, then you qualify as a first-time buyer, which can provide you with a wide range of benefits that can help you get into your first home. But there are many others out there who may be surprised to discover that they too can qualify as first-time buyers.
According to the U.S. Department of Housing and Urban Development (HUD), a first-time homebuyer is someone who meets any of the following conditions:
- An individual who has not owned a principal residence for three years. If you’ve owned a home but your spouse has not, then you can purchase a place together as first-time homebuyers.
- A single parent who has only owned a home with a former spouse while married.
- A displaced homemaker who has only owned a home with a spouse.
- An individual who has only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations.
- An individual who has only owned a property that was not in compliance with state, local, or model building codes—and that cannot be brought into compliance for less than the cost of constructing a permanent structure.
Understanding Your Financial Health
Before you waste all your time and energy looking for the home of your dreams, you should do a financial audit to ensure that you are financially healthy enough to buy a home. The first thing you should do is review your savings. Buying a first home involves having considerable funds available to cover the down payment and closing costs. But many lenders may also want you to have savings set aside as an emergency fund before they approve you.
Next, you will want to review your income versus what you spend. This will tell you how much of a mortgage payment you can comfortably afford. It will also help you determine your debt-to-income ratio, which ideally should be no higher than 43%.
Another important step in reviewing your financial health is to check your credit report. Lenders have minimum credit score requirements and they look for a history of paying your bills on time.
Understanding Your Housing Options
This step involves determining which type of housing option suits your needs best. There are many different options to choose from, including single family homes, condominiums or townhouses, duplexes, co-operatives, and even multi-family buildings. Each has its pros and cons, so you need to review each to find out which one will help you reach your homeownership goals the best.
Understanding Wants Versus Needs
Every first-time homebuyer envisions their home satisfying all their wants and needs, but this is very rarely the case with a first home. This is why it is important to weigh what you want in your new home versus what you need. It’s always nice when your home has many of the features you want, but if it’s lacking features you need, then you will most likely suffer from dissatisfaction and possibly even buyer’s remorse.
Find Out What You’re Qualified For Before You Start Shopping
Before you start shopping for a home, it’s important to get a general idea of how much a lender will give you to purchase your first home. After reviewing your finances, you might convince yourself that you can afford a $300,000 home, but your lender may think differently. Your lender will look at a wide range of factors like how much other debt you have, your monthly income, and how long you’ve been at your current job to determine how much they’re willing to risk. What will you do if you’re looking at $300k homes but only get qualified for $200k?
This is also one of the best reasons why you should consider getting pre-approved for your loan before placing an offer on a home. In fact, many sellers won’t even entertain offers if they’re not also accompanied by a mortgage pre-approval letter.
Understanding How Much Home You Can Afford
On the other side of the coin, a lender may also approve you for a larger mortgage than you can realistically afford. Thus, it is important to keep your head and not fall victim to buying more of a home than you can pay for or you risk being “house poor.”
When you’re deciding how big a loan to actually take, you’ll want to look at the house’s total cost, not just the monthly payment. This includes considering the property taxes in your chosen neighborhood, homeowner’s insurance costs, home improvement costs, closing costs, HOA fees, mortgage insurance, utility costs, and more.
First-time buyers should shop by following a smaller budget than they might be approved for. This will help make your financial life more flexible, and it will help you by providing you with greater leverage in a competitive housing market. If you leave yourself enough wiggle room in your budget this spring, then you may increase your odds of winning should you find yourself in bidding war on your dream house.
