Most people dream of owning their home someday. It not only saves you from the hustle of worrying about moving, landlord commitments, and rules, but it’s also a huge burden lifted off your shoulders. For many, the process of owning their first home may sometimes seem challenging. However, this 10-step guide is designed to simplify it and turn your dream into a reality within reach.
1. Save/Invest Early
Although the repayment plan for conventional loans is usually 30 years, you need to save up for a down payment and fees that you will pay upon signing the mortgage. In addition to the mortgage payments, other costs that are often overlooked include increased utilities, moving costs, furniture landscaping, remodeling projects, and maintenance costs.
Saving and investing early is a crucial element that will enable you to comfortably meet these costs. Growing your down-payment savings looks different depending on when you want to buy. For anyone waiting five years or more to buy, investing in stocks may be a good choice. The stock market has its risks, so ensure that you know exactly what you’re doing before jumping into this. You can start slow by trying to find out the best service for picking stocks on your cell phone. All you need to do is research an app and download it. If you intend to buy a house in a few years, saving may be the best option.
Being aware of what you can afford reduces the risks of last-minute surprises with your lender. Consider the following key points before settling on which home to purchase.
● “28/36 Rule”: This means that PITI (principal, interests, taxes, and insurance) cannot exceed 28 percent of gross monthly income. PITI plus all outstanding consumer debt (i.e. car loans and credit card payments), cannot exceed 36 percent of gross income.
● If you are unable to afford a home within these guidelines, it may be prudent to continue saving/investing to increase your down payment while repaying consumer debts.
● Inquire about loan programs for first-time buyers.
A credit score is a number that indicates whether you are a trustworthy person to lend money to.
Typically, with a credit score of 620, you are entitled to a mortgage. Your credit score affects your ability to purchase a property and your mortgage rate, therefore, it is important to understand how it works.
Websites such as freecreditscore.com allow you to get your credit score hustle-free. Many credit card companies also provide you with a credit score as a perk of using their cards.
There are several types of mortgage loans that appeal to a wide range of borrowers with unique financial situations and housing needs. The list below provides an overview of the mortgage loans that currently exist.
1. Fixed-rate mortgage: The interest rate doesn’t change, and it is spread over 30 years. Borrowers enjoy lower monthly periods since it is stretched over a long period.
2. Adjustable-rate mortgage: This option offers initial interest rates which remain constant for a specified period, but switch to an adjustable interest rate for the remainder of its term.
3. Jumbo mortgage: It is suitable for borrowers who need to take out more money than the federal limit for a standard mortgage.
4. FHA loan: These loans are insured by the Federal Housing Administration and are favorable to borrowers with a low credit score.
5. VA mortgages: These provide flexible, low-interest mortgages, for members of the US military(active duty and veterans) and their families.
It takes more than owning a real estate license to be an exceptional realtor. Here’s a guide on finding the best realtor for you.
1. Get referrals from your network. This involves asking friends and family to recommend a real estate agent with whom they’ve had a good experience.
2. Interview at least three real estate agents. An interview is a great opportunity to determine whether the real estate agent’s style and experience match your needs.
3. Request references and check them. Ask the agents to provide contact information for a few recent clients. You can call those clients to get further clarification on their experiences with the agents.
4. Trust your instincts. Above all, it is advisable to go with an agent you trust and will feel comfortable with.
5. Review your contract. Your contract usually spells out all the terms to which you’ve agreed, including the agent’s commission.
A great real estate agent makes a huge difference. An experienced agent helps to fast-track the process of buying a home.
A good location can give you more than just a higher likelihood that the home’s value will increase; it can mean access to good schools, to the downtown area, or the exact opposite depending on your needs.
You can start this process by prioritizing your needs and wants. This can be done by making a list of “non-negotiable must-haves”. During this process, consider your lifestyle as well. Do you need a house with a lot of yard space, kitchen space, or both? Afterward, you can compare this list with your budget and what’s available in the current market. Hopefully, this will help point you and your agent in the right direction.
Budgeting ensures that you will always have enough money for the things you need and helps to keep you out of debt. Here are some tips on how to stick to your budget when purchasing a house.
1. Establish a firm price limit. If you aren’t willing to sacrifice your current lifestyle for a new home, it would be wise to stick to a price limit. A mortgage calculator can help with this.
2. Keep tabs on your real estate agent. You need to communicate your budget clearly, emphasizing the need to stay within that budget.
3. Don’t compare yourself to others. It is common for first-time homebuyers to fall into the cycle of “compare and despair”. This is a nasty cycle to fall in, especially when buying a home. It may take you a while to recover from overspending.
4. Avoid bidding wars. Decide how much you’re willing to pay for a particular house in advance, and resist the urge to exceed that limit.
Most first-time home buyers leave the negotiating part to the realtors. While this may be the norm, it may be prudent to take the DIY approach since it ensures you aren’t missing out on any opportunities to bargain for what you want. Here are five areas you can negotiate when purchasing a home.
1. All or a percentage of closing costs to be paid. Homebuyers can typically expect to pay between 2% and 5% of the purchase price. However, these costs may be paid by the seller or buyer.
2. The premium of a home warranty, at least for the first year, and repairs related to inspections.
3. Flexibility on closing or possession dates. Most buyers assume it’s their problem to figure out, although negotiating flexibility regarding closing dates is pretty standard.
4. Cosmetic updates, furnishings, and household items. Although the furniture is considered a “gift” from homeowners, it can go a long way in helping first-time buyers save and may be worth the bargain.
5. House price or mortgage loan points: You can ask for a lower price based on factors like comparable properties, appraisal results, neighborhood status, home condition, and the overall market. It is also possible to ask a seller to pay loan points on your mortgage.
Negotiating is key in ensuring you have money for the last two tips.
In the process of closing a home sale, the buyer typically hires a home inspector to perform a visual observation as per the state’s standards. The home inspector identifies any health, safety, or major mechanical issues.
The inspection usually takes a few hours for an average-sized house. Once it is done, the report takes about 3-4 days to complete. The report can include:
1. The condition of the home’s heating and air conditioning system: to check for dirty filters or mold that could compromise air quality.
2. Interior plumbing system;
3. Electrical system;
4. Visible installations: includes walls, ceilings, floors, windows, and doors.
5. Foundation basement.
It is property insurance designed to cover private homes and their contents. Homebuyers purchase home insurance for three main reasons: to provide property coverage, to provide liability coverage, and to satisfy your mortgage lender.
Homeowner’s insurance will cover all perils except those specifically excluded in the policy. It comes in two sections: property coverage and liability. Before you settle on any insurance, ensure you assess the insurer’s customer service skills and ability to handle problems. You can also check their ratings in the state insurance department.
When you buy a home for the first time, you are making a long-term commitment to that house and everything that comes along with owning a home. It is a decision that you can’t afford to mess around with. The tips provided can be a useful guide to first-time homebuyers.