Buying Your First Home? These Tips Will Help Guide You Through the Process
So, you’re buying your first home. Congratulations! This is a huge milestone that can represent the passage to adulthood, safety and security, the starting of a family, or simply just a change in status. But since it is highly likely to be the most expensive purchase you have ever made, it’s one you want to go into with your eyes wide open.
In that spirit, here are the top 15 things you absolutely must know when going into your first home buying situation to make sure you get the best deal out there.
1) Make Sure You Can Afford It
Just because you have enough money for a down payment and can get a mortgage doesn’t mean you can necessarily afford a home. Make sure your mortgage payment, all told, is no more than 25 percent of your monthly income. Don’t forget that you will be responsible for things like insurance and maintenance for your new home, too.
2) Put 20 Percent Down
Some mortgage lenders will allow you to put down less than 20 percent if you buy PMI, or Private Mortgage Insurance. But PMI is a rip-off. It’s insurance for them, not you, but you’re paying for it. Wait until you have the 20 percent, or you are just throwing money away.
3) Don’t Forget Closing Costs
When calculating all the money you’ll need up front, don’t forget closing costs, which can include home inspection fees, credit report fees, and homeowner’s insurance, too. It usually comes up to about 3 or 4 percent of the total home price, so you should really expect to have to come up with 24 percent when you calculate both the down payment and the fees.
4) Loan Preapproval Can Improve Your Chances
Figure out how much house you can afford, and then get preapproved. Note: this is very different from being prequalified. Preapproval basically says that you are going to get the loan and have a letter to prove it, and as such, it is a much more rigorous process than prequalifying. Preapproval, however, makes sellers much more open to working with you.
5) Study Neighborhoods
The house itself is only part of where you live. Remember your house is part of a larger community, with schools, neighbors, community events, traffic, possibly crime, etc. Decide which aspects of a neighborhood are most important to you and factor that into your decision.
6) Study Home Prices
If you find a neighborhood and a home you like, try to find out what other homes in the area have gone for. This can give you a leg up in negotiations.
7) Know How Long Closing Takes
Some first-time homebuyers may not realize that it can actually take a long time to close on a house. Most houses close in around 41 days, meaning there’s no big hurry to take care of issues like home inspections and other closing items.
8) Look for a Fixer-Upper
You don’t have to buy a house that’s falling apart at the seams, but a house that doesn’t have some of the modern upgrades that the other houses in the neighborhood have could save you a considerable amount of cash. You can always put in the new countertops or remodel the bathroom later. In fact…
9) Do It Yourself (Later On)
If you pick a home that is missing a few upgrades that you could make yourself with a trip to the hardware store and some elbow grease, you could save even more money, so consider shopping around for a “fixer-upper.”
10) Have Some Cash Left Over
Try to make sure there’s a few dollars left in the bank account after that 24 percent is paid out. You’ll want that extra money for those home improvements and maybe some new furniture, a new fence for the yard, or other unexpected expenses that certainly may pop up.
11) Read the HOA Documents
HOA documents can seem long and boring, but be sure and take the time to read them. There’s a lot of important information in there, and finding it out now could save you big hassles down the road.
12) Don’t Be Afraid to Negotiate
Don’t fall so in love with a house that you immediately accept the asking price. There is usually a considerable amount of wiggle room there, and there are plenty of houses out in the world so don’t be afraid to walk away when it’s truly in your best interest.
13) Know Your Loan
Make sure you know the specific terms of your loan. Is there a balloon payment? What kind of points are you paying? What kind of penalties can be triggered? Not understanding the terms of your loan can cause real problems down the road.
14) Make Sure the Home Title Is Clear
Verify that the title to the property is free and clear before buying. You don’t want to complete the purchase and then have someone come around, claiming that they are the true owner of the home.
15) Expect the Unexpected
Even the best-laid plans can go off the rails. Get a reliable lender, be as prepared as you possibly can, and always be flexible. Good luck!
