Oct 13, 2022

12 First-Time Home Buyer Tips You Should Know

The process can be confusing and complicated — especially if it’s your first time around the block. Let's take a look at some first-time homebuyer tips and common pitfalls you'll want to avoid so you'll be well informed before your purchase

Should I Buy A House With Inflation On The Rise?

12 First-Time Home Buyer Tips You Should Know

Choosing to become a homeowner is always a big decision, regardless of whether you've been saving for years or want to benefit from a first-time homebuyer program. If you're buying a home for the first time, the process might be challenging and complex. In order to be well-prepared before your purchase, let's look at some first-time homebuyer recommendations and typical traps you'll want to avoid.

1. Prepare Your Finances

One of the most crucial home-buying strategies is to plan your money ahead of time. Your new home is an investment, but your bank's investment is a home loan. It's searching for low-risk loan consumers, so you'll need to demonstrate financial stability.

You can do a few things to prepare your finances before applying for a mortgage:

  • Pay down debt
  • Make on-time payments
  • Avoid taking out additional loans or credit cards

At this time, you should start saving for a down payment, but the amount you'll need may be set by the mortgage you're applying for. Generally speaking, before you think about buying a property, you should have three to six months' worth of living expenses saved up. You shouldn't use this money to cover any down payments on a house either! When buying a property, there will be a lot of up-front expenses, such as the down payment and closing costs. You'll need money set up for both those costs and an emergency reserve. The lenders frequently want this as well (they want to protect the risk that they are taking on you).

Here are two different types of accounts where you can store your savings:

1. A certificate of deposit (CD) may be an excellent alternative if you have one to three years to achieve your goal. The same logic can be extended to buying a short-term bond or fixed-income portfolio, which will provide you with some gain while also protecting you from the turbulence of stock markets.

2. A high-yield savings account is a great account to keep the money liquid if you only have six months to a year. You should verify to see if it's guaranteed by the Federal Deposit Insurance Corporation (FDIC), which most banks are, so you can keep your money up to $250,000 if the bank fails.

2. Know What Your Budget is Early

Examine your spending patterns. You need to be completely aware of all of your monthly expenses. How much you have available to contribute to a mortgage payment will be determined by this computation. Make careful to include everything in your accounting, including power, food, auto maintenance and payments, school loans, clothing, child care, entertainment, savings for retirement and regular savings, as well as any other unforeseen costs. The amount of money you put down and the mortgage options you select will both have an impact on your budget.

Grab your FREE  budget here!

Mortgage calculators can help you figure out how much you'll have to pay each month. It's also crucial to determine how much house you can actually afford based on your salary. To ensure that you can repay your loan, banks will typically require you to keep your debt-to-income ratio below 36%.

Note: If you put down less than 20%, you'll almost certainly be responsible for private mortgage insurance (PMI). This may increase your monthly expenses.

When making your budget, don't forget to factor in the "invisible" expenses of housing. These costs include things like maintenance and property taxes. Make sure you don't go over budget. Over time, this creeping trend has become more pronounced.

3. Think About Your Wants and Needs

Visit neighborhoods as soon as you can because starting your search for the ideal location and address can take much longer than you anticipate. Explore the area at various times of the day to determine what you like and don't like. Now is a great time to decide on the neighborhood as well as your ideal type of house. For example:

  • What kind of house are you looking for?
  • What are you prepared to sacrifice?
  • What obstacles are there?

Consider what you appreciate about where you live now to help you create a list of requirements and “must haves” when buying your first home. Keep in mind that you can change a lot of items in a house, including the kitchen, backyard, bathrooms, and bedrooms. You can't change the location or the size of the lot, so when deciding on your "must-haves,” really work on that pros and cons list.

4. Don't Buy Solely Based on the Market

The real estate market is dynamic. There are instances where there are more houses up for sale than there are buyers. There is a buyer's market as a result. Other times, when homes are snapped up quickly, multiple-offer scenarios could become more common.

Timing the market entails attempting to forecast the ideal time to buy and then waiting until that period arrives. This could result in you saving money or facing less competition, but you should avoid attempting to time the market. Waiting for the market to change can have a number of drawbacks, including increased rent or the possibility of home prices continuing to rise.

5. Collect and Organize Assets

Along with evaluating your credit report, mortgage lenders frequently analyze your bank statements from the past two months when assessing your application for liquid cash and general financial health. If you intend to transfer money into your checking or savings accounts from another source—for example, a gift for a down payment—do it before the 60-day cutoff date. This enables the use of the money to "season" it. Again, refrain from taking on more debt by not using additional credit cards or loans. Your credit score could be negatively impacted by any of these acts.

6. Explore Your Mortgage Options

Things are starting to take shape. You should now have a good idea of what monthly payment you can afford, as well as what locations you can afford and how much you can put down. It's time to start looking for a mortgage. Compare mortgage rates from a variety of lenders and mortgage types to see if now is a good time to lock in your rate. Take into account your previous interactions with the lender. There are many different types of mortgage loans available, including first-time homebuyer loans. These frequently come with lower interest rates or fewer down payments.

Let's take a look at some examples:

  • Conventional loans are the most common type of home loans. You can purchase a home with as little as 3% down. We don’t necessarily think 3% down is a good idea, but you can :).
  • FHA loans can allow you to buy a home with fewer, strict financial and credit score requirements. You can get an FHA loan with a 3.5% down payment and a credit score as low as 580.
  • USDA loans are for people who want to buy a home in a qualified rural or suburban area. You can get a USDA loan with 0% down, subject to household income restrictions.
  • VA loans are exclusively for veterans, members of the armed forces, the National Guard, and qualified spouses. You can buy a home with 0% down if you qualify for a VA loan.

Note: make sure you've thoroughly explored all of your possibilities before you commit to any one form of mortgage.

For example, be sure to look at all of the terms of the mortgage, not just the rates:

  • What are the penalties for arriving late?
  • How much do you think the closing costs will be?
  • Is there a penalty for paying early?
  • Will you get a better deal if you get a mortgage from a bank where you already have an account?
  • When the other terms are better, it may make sense to choose a loan with a somewhat higher rate.

7. Get Pre-approval

After zeroing in on a potential mortgage provider, the next step is to get pre-approved. A pre-approval, as opposed to a prequalification, is an official statement from a lender declaring the maximum loan amount they will offer you. Having a pre-approval letter in hand will give you a leg up when making an offer on a home, and it will also streamline the loan application process after your offer has been accepted.

Pre-approval has a number of advantages, including:

  1. You know exactly how much money you have: Once you have a pre-approval letter in hand, you and your real estate agent will know what you can afford. This will allow you to browse on a budget.
  1. You can make a better offer: Sellers want to know that the buyer they choose will be able to afford their house. A preapproval letter informs a seller that you have the funds to acquire the property.
  1. You'll encounter fewer surprises: When you're pre-approved, you'll have fewer last-minute surprises or setbacks with your lender.

8. Consider Applying for First-Time Homebuyer Grants

There are numerous local, state, and federal programs that can help you with your down payment and closing costs if you are a first-time purchaser. Borrowers' annual incomes must be below a certain threshold (which varies by location) and the home's purchase price may be capped under these programs. Talk to your loan officer about your options to see what you may do in conjunction with your mortgage.

Using these, you can avoid spending tens of thousands of dollars:

- First-time Homebuyer Programs

- Down Payment Assistance

9. Hire a Real Estate Agent

After you've worked out your financing and obtained a preapproval letter, you may start looking for a real estate agent to represent your interests as a first-time buyer. They will have the knowledge to:

  • Inform you if the asking price is fair.
  • Let you know if it's a good place to live or not.
  • Give you a sense of how quickly houses are moving off the market.
  • They will act as your representative in talks and draft the necessary documents.
  • DIY is possible, but for first-time buyers, an agent is almost always the best option.

10. Don't Neglect the Inspection

The goal of a home inspection is to find major problems with the foundation, pipes, roof, and electrical systems that would otherwise require expensive repairs. A professional inspection is warranted regardless of how sharp your eyes are. If you pay for a home inspection, the inspector will give you a comprehensive report on the property's current state. Create a plan for what could go wrong.

To avoid any confusion once you've located a buyer and are ready to make an offer, it's important to spell out any conditions that would allow you to back out. Examples of these include problems found during a home inspection that would cost a lot of money to fix or the bank refusing to give you a loan. You may protect yourself from losing your earnest money and opt out of the deal if things don't go as planned by putting the conditions and dates in writing. Get quotations from contractors for any work that needs doing to the house if there is a problem. If you haven't already, find a real estate lawyer to review the acquisition agreement and advocate on your behalf.

11. Carefully Plan Your Offer

How the market is doing will have a big effect on the offer you make. If there's less competition, you'll have more room to negotiate, but if it's a seller's market, you'll need to be ready for other offers. When making an offer, it's important to listen to your agent's advice. There are a lot of moving parts in real estate, and an agent's advice can make or break a deal. To get your offer accepted, you'll have to be flexible and come up with new ideas. Consider sending a personal note to the seller, increasing your budget for your dream home, or getting rid of contingencies.

12. Keep Hard Copies Of Your Important Papers

Once you've chosen a home, don't forget to fill out the paperwork. Yes, cloud storage is convenient, but you should keep a hard copy of your mortgage statements, deed, closing disclosure, and other important documents in a locked, fireproof filing cabinet. Make sure that everyone who has a hand in your loan knows where the documents are and how to get to them in case of an emergency.

Feeling A Bit Overwhelmed?

Don't worry, because you're not alone here! The team at Vincere Wealth Management can help you come up with a plan that fits your specific needs and gets you to where you want to be. Talk to them to get moving into your dream home.

Click here to schedule a session for free.

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