First-Time Home Buying Tips

Buying a house can be a stressful ordeal, especially if you are a first-time homebuyer. These tips are aimed at helping you save money and avoid common mistakes.

The tips are organized in four categories:

  • House shopping
  • Mortgage application
  • Mortgage down payment
  • Mistakes to avoid.

House Shopping

Decide on the right type of house and neighborhood

You may have already decided that a single-family home is right for you. This may be true if you are looking for a lot of room and a big yard. Keep in mind though, if you are willing to give up some of that space and don’t mind paying a homeowners association fee, a condo or townhouse with more amenities may be the right fit.

Keep in mind, even if you find the perfect house, the neighborhood could be all wrong. Be sure to:

  • Check local safety and crime statistics.
  • locate the nearest grocery store, hospital, pharmacy, and other places you will be traveling frequently.
  • Look into nearby schools, even if you don’t have kids, they directly affect home values.
  • Drive around the neighborhood at various hours and different days of the week. Check for traffic, activity, and noise levels.

Stick to your budget

Don’t be afraid to look at properties that cost less than you were approved for. Although you can technically borrow your pre-approved amount, it’s the ceiling and should definitely be treated as such. It doesn’t account for your non-debt related monthly expenses or problems such as a broken refrigerator that can come with homeownership. Having a set budget will also help when it comes to making offers.

Unfortunately in a competitive real estate market with limited houses, you will likely end up having to bid on houses that receive multiple offers. Once you find a house you love, it’s tempting to make a really high offer to ensure you win. Don’t let your emotions get out of control though. This can lead to buyers remorse and can create a very bad situation if it gets out of hand. Stick to your budget and make as informed of a decision as possible.

Hire a good buyer’s agent

You will be relying on your buyer’s agent heavily throughout your home purchase. This person needs to be someone you will get along with who also has years of experience. Finding the wrong agent or trying to finish the deal with a bad agent can be a nightmare. Keep this in mind and talk to multiple agents. Find the person who is right for you.

Mortgage Application

Calculate how much you can afford to spend on your new home

The first thing you should do before you search for your new home is to find out what is in your price range. You can use this affordability calculator to help determine what you can safely afford.

Check your credit score and stop using it temporarily

When applying for a mortgage, your credit is key. It will help determine if you are approved, what interest rate you are offered, and other loan terms.

Definitely pull your credit report before you begin the process. Dispute any errors on your credit report and look for opportunities to improve your credit.

Do not purchase a car or do anything else that requires credit during the home buying process. If you get pre-approved, have an offer accepted and then the day before closing you buy a new car. The bank will have to re-evaluate your creditworthiness and you may not be able to borrow as much as you were previously.

Shop around for the best rates

Most home buyers only get a quote from one lender but this often isn’t the best rate you could have received. According to the Consumer Financial Protection Bureau you can save over $3,500 in the first five years by getting at least 3 quotes.

Mortgage Down Payment

Start saving for your down payment as soon as possible

It’s common to put down 20% for your new home. Many lenders now allow much less, some being as low as 3%. This may sound good but putting down less money comes at a higher cost. You will be paying for Mortgage Insurance. This can cost you an extra $50 to $100 a month until you have 20% equity in your home.

You can use this down payment calculator to get an idea of how much you will need for your new home purchase.

Explore down payment and mortgage options

There are a lot of loan programs out there. Each one has it’s own pros and cons. If you aren’t able to come up with 20%, check out these programs.

  • Conventional mortgages – conform to Fannie Mae and Freddie Mac, can require as little as 3% down. (My personal was 10%)
  • FHA loans – Loans insured by the Federal Housing Administration which can be as low as 3.5%.
  • VA loans – Loans guaranteed by the Department of Veterans Affairs which sometimes require 0% down.
  • USDA loans – Loans guaranteed by the United States Department of Agriculture which require 0% down for rural or suburban homes.

Common mistakes to avoid

Not saving enough for moving expenses

Once you have your down payment and have budgeted for closing costs, you should set aside money for new furnishings, appliances, or any other improvements you may want to make after moving in. You also should budget for the moving process it’s self.

Buy the home for tomorrow, not for today

If you plan to start a family, buy a home that will be big enough for the new family. Buying too small of a home and then selling it in a couple of years will cost thousands. Make sure to consider your future needs and if the home you have chosen will accommodate them.

Don’t pass up the chance to negotiate

With the home buying process, a lot is up for negotiation. If the house requires major repairs, do not be afraid to ask the seller to make a concession to cover those repairs. It’s often a better idea to receive credit and make the repairs yourself. The seller could cheap out on contractors and the repair may not be done the way you would like. If the home has been sitting on the market for a long time, the seller may be willing to bargain with you to get a deal done.

Not understanding the limits of a home inspection

After you have a house under contract, it’s very common to send in a home inspector to examine the property. The results of this inspection will not be every problem the house may have. Inspectors overlook problems every day, keep these things in mind:

  • Not all inspectors look for pests, mold or radon
  • Ensure the inspector has access to every part of the house, such as the roof or crawl space. (I’ve had an inspector tell me he couldn’t access the attic so he didn’t check it.)
  • Show up when the inspector does and ask him questions. He is there for you.
  • Don’t be afraid to point things out and have him take a closer look.

Don’t be afraid when purchasing your first house. It may feel overwhelming but as long as something major doesn’t go wrong, you should be fine. Don’t buy a house above your budget and everything should be fine. Broken things can be fixed. I hope you find your dream home! Good luck out there!

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