There’s a lot of excitement that comes with buying a home for the first time. It’s an incredible accomplishment that comes with a somewhat complex process.
Home prices are on the high end in many areas right now, due to limited supply and heavy demand. Being informed of what to expect as you consider houses may help empower you to make better decisions and to reduce stress (especially financial stress).
Here are 10 crucial things first-time homebuyers should know.
A must-have list will help you shop
Everyone has a dream home. But a dream home is just that. Depending on your budget and what is on the market, some compromises will have to be made.
Consider what your absolute must-haves are and write those down. What are your needs versus your wants? Do you need a certain number of bedrooms or bathrooms? Does the house need to be in a certain school district?
Then also write down what you are willing to give up from your dream home.
The value of a good realtor
Find a realtor with a knowledge of the area you are purchasing. They should be an informed intermediary, with an understanding of local prices, rates, appraisal values, and negotiation skills. They may also help guide you in choosing a reputable inspector through their network, and guide you through the process.
Share with them all your must-haves for a new home. They can apply those needs when looking through inventory so you are looking at homes that are strong potentials — they understand the value of your time.
Getting a pre-approval is worth it
Before you start going from home to home, your lender will need to grant you pre-approval status for a mortgage.
Although it's not a full contract for a mortgage, it shows that a lender has analyzed your finances, budget, and credit, and outlined what you can apply for. It also shows that you've taken the steps to start the process, which can make realtors and sellers more open to showing you a house and negotiating.
Here's a list of the best mortgage lenders.
You may qualify for federal help
As daunting as it can be to buy a home for the first time, there are several government benefits and programs that may help, both financially and with information.
The Department of Housing and Urban Development offers a housing counseling program to help new buyers through the process, including how to apply for and budget for a mortgage.
There are also federal loan packages as well. If you qualify, a Federal Housing Administration (FHA) loan may ease down payment fees, since the government's the insurer on the money.
Beyond immediate grants and lending programs, there are also tax credits available that you may qualify for.
Your state may have benefits as well
Beyond what HUD offers, individual states have programs and lenders for first-time homebuyers as well. As these programs vary by state, be sure to look at what your area offers to see how best to use that with the federal benefits.
Keep in mind that in some cases you might just go with the federal plan, but it's good to look at all options.
Locking in an interest rate could save you
After you've done your research on potential financing options and looked at different lenders, you're ready to get a mortgage loan. You’ll want to ask about locking your interest rate, which essentially fixes the interest rate in place until closing.
Once your rate is locked in, it won't go higher, which could be good during times of inflation and rate hikes. But also keep in mind that you can't lower the rate, so monitor the interest rate trends before you enact this lock.
Your credit score will take a hit
A mortgage can be an essential tool in getting that dream home, but any potential buyer needs to be aware of the downsides to it. A big mortgage might be able to help offset the buying costs, but it can depress your credit score.
That means other purchases or loans that require checking your credit score — think car loans for instance — could be impacted. Consider waiting to assess the impact to your score before applying for another loan after you get your mortgage settled.
It’s rarely a good idea to skip the inspection
Home inspections are recommended. Although you shouldn't assume every seller is out to swindle you, they themselves might not know the deeper problems with their house.
A skilled inspector can help you see what parts of the house might be in need of repairs sooner rather than later. This will cost you out of pocket, but the inspection will be helpful in long-term financial planning and aid in making an informed decision.
You should plan for your closing costs
In general, buyers can expect to pay 2%-5% of the mortgage loan total at the close. This is one of the costs you should be budgeting for and be prepared to save up for and set aside, like down payments. There may be options to negotiate a lower closing cost with your lender, so be sure to check what they offer.
Pro tip: Not sure where to start? Here’s a guide to the best mortgage lenders.
Start working on a repair budget
There's a chance that the home you choose may need a little work. Take time to map out what you'll need to spend on immediate repairs, upgrades, and long-term upkeep.
Will you need to update the electrical system either due to aging infrastructure or a desire to go more eco-friendly? How old is the roof? Is the town or city you're buying in requiring some renovations to meet code?
Map all of those changes out, and track both the expected costs and necessary timeline so you can save up and be ready to pay those costs when the time comes.
Pro tip: Plan ahead for how you want to finance your home improvements.
Buying a home for the first time can feel overwhelming, but it doesn't need to be that way. Ask all the questions you need to feel secure in your decision making. Make sure you can handle the financial stress (and consider ways to make extra money to pay for new costs). This is an exciting time in your life, and one that should be celebrated.
Take the time to really think about what you are looking for in a home. Empower yourself by learning all about the crucial things every buyer should know. There are experts in the field there to help guide you through the process. But, as always, trust your gut instincts. Many homebuyers have said that when they first toured the home they eventually purchased, they knew it was the one.
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