When Buying a House, Here's What You Should (and Shouldn't) Do Taking the plunge into homeownership is always a big decision, whether you've been saving for years or want to take advantage of a first-time homebuyer program. The procedure is complicated, and if you're not prepared, it can be overwhelming. Let's have a look at some first-time homebuyer advice and common pitfalls to avoid so you can make an informed decision.
Important Points to Remember
- Prepare your financial situation well in advance of applying for a home loan.
- To find the best deal, compare multiple offers from different lenders.
- Take advantage of first-time homebuyer programs to get low-interest rates and help with the down payment.
- A real estate agent can be a useful resource in guiding you through the various stages of the home-buying process.
1. Get your finances in order
One of the most important home-buying tips is to plan your finances ahead of time. Your new home is an investment, but your bank's investment is a home loan. It's looking for low-risk loan customers, so you'll need to demonstrate financial stability. According to John Cabell, director of banking and payments intelligence at J.D. Power and Associates, there are a few things you can do to get your finances in order before applying for a mortgage. Pay off your debts, keep your payments on time, and avoid taking out new loans or credit cards. Cabell told us via email that taking on new debt, even if it's well before your mortgage loan application, is a common mistake. New accounts do not appear on your credit report right away. They usually arrive after a few weeks. Starting saving for a down payment at this point is a good idea, though the amount you'll require may be determined by the mortgage you're applying for.2. Make a budget early on
Your budget will be determined by a number of factors, including the amount of money you put down and the mortgage programs you choose. To ensure that you are able to repay your loan, banks will typically require you to keep your debt-to-income ratio below 36 percent. You can use mortgage calculators to figure out how much you'll have to pay each month. It's also crucial to determine how much house you can afford based on your income. 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" costs of homeownership. 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. In 2021, about 28% of buyers spent more than their initial budget allowed on their homes.3. Don't Buy Just Because It's On Sale
The housing market is constantly changing. There are times when there are more houses for sale than there are potential buyers. As a result, there is a buyer's market. Property will be snapped up quickly, so multiple-offer situations may become more common at other times. Timing the market entails attempting to forecast the best time to buy and then waiting until that time 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 disadvantages, such as higher rent or the risk of home prices rising further.4. Examine Your Mortgage Alternatives
Mortgage loans come in a variety of types including first-time homebuyer loans. These frequently come with lower interest rates or smaller down payments. Before you commit to a specific type of mortgage, make sure you've thoroughly investigated all of your options.5. Investigate First-Time Homebuyer Programs
Look into programs for first-time homebuyers. These programs can help with a down payment or provide vouchers for a home purchase. You can save tens of thousands of dollars by using these. Many programs consider first-time homebuyers to be those who have not lived in or owned a home in the previous three years.6. Examine a variety of loan options
Each bank imposes its own set of charges, which can lead to some significant price differences. Different banks have different annual percentage rates (APRs), so getting multiple offers is critical to finding the right lender. When you're ready for your home search, don't forget to get a preapproval letter from your bank. Many sellers will refuse to accept an offer on a home unless you have one. As you go through the mortgage application process, your credit report will be checked frequently. Multiple inquiries within a 45-day period, on the other hand, are recorded on your credit reports as a single inquiry. According to real estate agent Jason Zaitz, the number one mistake made by first-time homebuyers is failing to prepare before going house hunting. "It's critical to have a preapproval letter with a local lender in any market ,just in case you find the perfect home during your first time touring homes," he told The Balance via email.7. Create a list of "Must Have" Home Features
When you're touring homes, it's easy to start adding to your list of needs and wants. However, you should double-check the list to ensure that it accurately reflects your true desires. Is it important to you where you live? What about educational institutions? Is the home required to be turnkey, or are you willing to renovate? Keep in mind that you can change a lot of things in a house, including the kitchen, backyard, bathrooms, and bedrooms. You can't change the location or the size of the lot. When deciding on your "must-haves," keep this in mind.8. Hire a representative
A real estate agent is an expert at what they do to locate the home that best meets your needs. They can inform you if a home is priced correctly, if the neighborhood is desirable, and how quickly homes are selling. They'll be able to represent you in negotiations and prepare all necessary paperwork. It is possible to do everything yourself, but an agent is almost always a better option for a first-time homebuyer.9. Don't Forget to Inspect
The aim of a home inspection is to find problems with the structure, plumbing, roof, and other home components that could be very costly to repair. Even if you have a keen eye, a professional will be better equipped to inspect the property. You'll have to pay for it, but once the inspection is completed, the inspector will send you a detailed report outlining the property's condition. Tip: Ignoring the inspection is the same as walking into a room blindfolded. Before you buy a house, an inspector can tell you if any costly repairs need to be done.10. Carefully consider your offer
Market conditions will heavily influence the offer you make. If there's less competition, you'll have more room to negotiate, but you'll have to be ready if it's a seller's market, keep an eye out for other offers. Listening to your agent's recommendations is critical when preparing an offer, according to Leo Esguerra, a San Diego, California-based agent. There are a lot of moving parts in real estate, and an agent's advice can make the difference between success and failure. In a text message to The Balance, Esguerra said that this is especially true in hot markets, which commonly occur when low-interest rates. To get your offer considered, you'll need to be flexible and inventive. Consider writing the seller a personal letter, extending your budget for a dream home, or eliminating contingencies.11. Make a deal Thoroughly
Understanding how to negotiate is crucial, and a real estate agent can be extremely helpful in this situation. If the seller declines your initial offer, you may have to negotiate. If the home inspection reveals problems, you may be forced to do so. It's usually possible to reach an agreement with the seller to have these issues resolved before you purchase the home. You can also get a credit for the purchase price if you want to fix the problems yourself. Prepare to haggle with the seller in order to get the best price, also, if you can't reach an agreement, don't be afraid to walk away. It's never late to find a new place to call home.Most Commonly Asked Questions (FAQs)
Is it ever too late to back out of a home purchase?
You can back out of a house purchase at any time before the closing, but you may lose any earnest money you've put down. This will be determined by your specific contract and the length of time you choose to back out.What are the best ways for me to save money for a down payment on a house?
The very first step in determining how to save money for a house is determining your cash flow. This is where your money is spent on a monthly basis, and it will give you an idea of how you spend and where you can save. Then you'll want to start pricing houses to figure out how much you'll need to save for a down payment and closing costs, as well as a monthly savings goal and a timeline. Work on keeping track of your progress. If you want your money to grow faster, you might want to look into high-yield savings accounts. Make a concerted effort to cut any unnecessary costs.What is the average time it takes to buy a home?
The market, as well as your personal circumstances, will determine this. If you don't act quickly enough when competition is high, you may miss out on properties due to multiple-offer scenarios. When the market shifts, you may be able to take it at a more leisurely pace. The length of time it takes to buy a house is also determined by the type of loan you use. In November 2021, the average time for a VA loan to close was 56 days. This is in contrast to the 48-day average for those using a traditional mortgage to purchase a home.