Purchasing your first home is an exciting experience. However, it’s a complex financial and legal process that can also lead to a roller coaster of emotions. When buying your first home, being prepared and understanding that you don’t know everything is essential.
Here are key factors to keep in mind when purchasing your first home and some helpful tips to guide the process.
Set Your Priorities
Before you dive into the home buying process, clarify what you want from your first house. Think about the future and whether this is a starter home or you hope to be there for a while. Consider the neighborhood, amenities, number of rooms, style, yard size, bathrooms, etc. Finally, determine whether you have any special considerations, like accessibility features.
Once you get a clear vision of what you want from your first home, set your top priorities. These features are your non-negotiables. Then, identify what features you want, if possible. Depending on the market, you may re-evaluate your non-negotiables throughout the process. In a seller’s market, you may not have the time or budget to get too particular. However, this is a starting point that will help you narrow down your options.
One of the most common mistakes first-time home buyers make is failing to get pre-approved. Many use a banking calculator to get pre-qualified, which isn’t the same thing. A pre-qualification gives you a rough estimate of what you could reasonably expect to secure for a mortgage. A pre-approval is an in-depth look at your financial metrics to refine that number and confirm your eligibility.
If you don’t get pre-approval, you risk having your financing fall through and losing out on a potential home. This exercise is also an opportunity to clarify what issues may prevent you from getting a mortgage and explore the various types of mortgages.
It’s recommended that you look at your debt ratio and credit score well before looking for a house. These two metrics and stable employment are some of the top factors a bank assesses when approving financing.
If you are struggling with debt, getting a personal loan for debt consolidation can be a great way to help you purchase a home. By consolidating your debt, you can reduce your monthly payments and save money on interest. In addition, personal loans can help you improve your credit score by consolidating your debts into one monthly payment. As a result, personal loans for debt consolidation can be a smart way to help you purchase a home.
Budget for Closing Costs and Extras
Buyers don’t have the same closing costs as a seller, who must pay a commission to their realtor, but it can still be expensive. Experts recommend setting aside 2-5% of the overall house price for closing costs, which can’t be added to your mortgage. So, if you purchase a $250,000 home, you can expect between $2,000 and $12,000 in closing costs.
In addition to direct costs, consider the other expenses associated with moving. For example, when moving from a loft apartment to a three-bedroom house with a basement, you’ll pay more for monthly utilities, and likely need some furniture.
It’s important to understand that the mortgage you’re approved for isn’t necessarily what you can afford. Crunch some numbers and leave yourself some buffer room.
Find a Skilled Buyers’ Agent
A skilled buyer’s agent will be your best friend throughout this process. Don’t make the mistake of trying to handle your first home purchase alone. An agent will have valuable market knowledge, connections, and negotiation skills. They can tell you when to push for contingencies and when you should consider walking away.
Best of all, most buyer’s agents work at no cost to the buyer. While you should clarify this with the agent before proceeding, most buyer’s agents receive a part of the selling agent’s commission.
Overlook Cosmetic Details
It can be difficult to look past garish wallpaper or dated flooring— that’s why so many sellers invest in staging. However, these things can be remedied over time and aren’t worth getting stuck on if the rest of the house fits the bill. Major repairs and upgrades should be the greater concern.
Invest in an Inspection and Contingencies
Never bypass an inspection or contingencies, whether it’s your first home or your fifth. Many aspiring buyers have put in offers without inspections or contingencies in recent years due to market demand. Many of these buyers have ended up in dire financial states as a result.
An inspection shows what’s going on in the bones of your home, identifying things like lead pipes and asbestos shingles. It’s worth the extra expense and the ability to back out of your contract if something is wrong.
Consider the Logistics
Once you’ve submitted an offer and had it accepted, start dealing with the logistics of your move as soon as possible. Some top considerations include:
- getting home insurance
- transferring or hooking up utilities
- hiring a mover or truck
- changing your address with banks, the government, etc.
- scheduling time off work for the closing day
Purchasing your first home is a huge step with a lot of moving parts. By focusing on the key items listed here, you’ll find your ideal first home and navigate the purchase with minimal stress.