First-timers to home buying are about to embark on the largest and most exciting purchase of their lives. But before you dash off into your new life in suburbia, there’s one thing we need to talk about: closing.
You may have heard home buying horror stories from friends who were left with a big pile of bills after taking out loans they couldn’t afford. Or, found themselves stuck with a house that had major problems because the seller failed to disclose it during negotiations.
These kinds of things can happen when someone is inexperienced at buying property for either themselves or another person as part compensation for debt services such as mortgages, but don’t worry! We’ve got some tips for first time buyers so this doesn’t happen to you.
Home Buying Tip 1: Start Gathering a Down Payment
Saving up for a down payment can be tough, but it’s worth the effort. Ideally you want to have at least 20% of the sales price for a downpayment so that insurance doesn’t add to your monthly mortgage payment. Also, because equity right from the start is great!
With a conventional loan, you’re typically required to pay 5% of the home value as a downpayment. When applying for a Federal Housing Agency, or FHA loans, they will typically require a 3.5% down payment. So, you’re not locked into paying the 20%, however paying less will require applying for Private Mortgage Insurance, which adds cost down the road.
Though 20% of the purchase price is the best advice, you don’t have to let the downpayment rule keep you from owning a home. Sometimes putting down less than that can make more sense based on both short-term and long-term considerations. These figures can be more easily imagined using a downpayment calculator that will help you visualize how much you will owe now and in the future.
Home Buying Tip 2: Get Pre-Approved for a Mortgage
Planning your finances before house hunting is important, and a pre-approval letter can help. Planning out how much you want to spend on the home of your dreams will give you an idea for what monthly payments are possible with that budget. With this information in hand, it’s time to consult with a mortgage lender so they know exactly where you stand financially when looking at homes!
Imagine this procedure like a small health check-up on your financial history. Your lender will get some background information on your credit report, your amount of debt compared to your income annually, as well as employment history.
It’s common to confuse this process with a prequalification. While they do similar things, a prequalification will only give you an estimate on your mortgage amount. Pre-approval requires filling out a mortgage application and will definitively assess your creditworthiness before deciding whether or not to lend the money. Keep in mind this process may impact your credit score.
Home Buying Tip 3: Find a Real Estate Agent
Real estate agents are the people you want to know when looking to find a home to buy. Agents work with their clients every step of the way, from providing education on current market conditions and guiding them through each part of a transaction to making referrals for other professionals like inspectors and attorneys.
Realtors have particular titles in different situations: some represent buyers while others focus exclusively on sellers; there’s even options that combine both in one package!
It’s recommended to specifically seek out a buying agent if you’re looking to buy, or a selling agent if you’re looking to sell. While they can mix together sometimes, it’s better to have someone dedicated to you and your needs.
Have plenty of conversations with your realtor throughout the entire buying process. Make sure they have the ability to help you; ask them if they’ve recently helped others in situations similar to yours.
Ensure they’ll stay within your price range, and give you realistic expectations of competition with other buyers and market conditions. If your realtor is really savvy, they may even be able to help negotiate the seller to pay part or all of your closing costs, saving you money in the end!
Home Buying Tip 4: Get a Home Inspection
When you buy a new home, there are many factors that can determine your love for it. You might fall in love with the size of the house or its layout. But while your heart may be set on buying this lovely abode, an inspector should always come first to find any problems hiding beneath those beautiful exterior features and floor plan layouts.
Some things like improper insulation found in attics could lead to higher energy bills down the line if not corrected before purchase! Some sellers have been known to push for waiving inspections for reasons like trying to hide big repairs or mistakes.
Not only sellers, but many buyers will choose to waive this part simply because buyers are responsible for the cost of an inspection. It’s not wise to forgo a home inspection. However, an inspection will allow for insight into issues you may not have been aware of without it.
This can end up adding plenty of repair costs you have to pay in the future. Not only will an inspector examine the safety of your future property, but they’ll also do so with impartiality and offer you unbiased documentation about its condition beforehand!
The Big Picture
As you can see, there are a lot of things to think about when it comes to buying your first property. The good news is that keeping these four home buying tips should help make the process more manageable and less scary! Just keep our advice in mind next time you’re looking for a place to call home. We’ll be here with all the resources we have available if you need us!