Before you dive into a big task like buying a home for the first time, you need to make sure that you get everything right from the very start. To assist you in navigating through this process easily and understand the details correctly, we have divided the tips into four simple stages:
“Preparing to Buy” tips.
“Mortgage Selection” tips.
“Home Shopping” tips.
“Home Purchasing” tips.
1. Start saving early
There are various different types of expenses involved in the process of buying a home, other than just the price of the house, so you need to carefully take them into account.
Below is the list of most common expenses that you need to remember when starting to save money for buying a house:
- Down payment: While securing a mortgage for your new house, you need to pay a certain percentage of the amount upfront, which is known as the Down-payment. The exact sum depends on the type of mortgage and lender you select, but normally even with an excellent credit score, using conventional loans, a 3% down-payment is a minimum. So if the house you are buying has a $250,000 price tag, your down-payment requirement will at least be $7,500 which you need to take into account before finalizing the deal.
- Closing Costs: Other than the value of the house, typically there are other closing costs involved as well, which range from at least 2% to 5% of the total house value. Normally, you will have to pay these costs, unless differently agreed with the seller. Sometimes a part of the closing cost can be covered by the seller as well, depending upon the negotiation between all involved parties.
- Move-in expenses: After the deal for a house is finalized, you have to pay the movers company some charges as well. Also, set aside some money for the immediate repairs and furnishings
2. Decide how much home you can afford
It is vital to estimate your affordability before you go and shop. You to figure out your budget based on several parameters such as your income, credit score, down payment, etc.
3. Check and strengthen your credit
Checking your credit ratings and scores is important because this is exactly what the lenders rely on before offering you a mortgage and deciding the interest rate. You can strengthen your credit score by following these steps :
- Get your credit report copies free of cost from Experian, Equifax, and TransUnion, all three bureaus and look for any possible errors or disputes
- Make sure there are no unpaid bills and your credit cards are not maxed out.
- Do not close your current credit cards as that will lead to a lower credit score.
4. Explore mortgage options
There are several options available when it comes to the type of mortgages, with different eligibility, term, and down-payment requirements. Here is the list of some main types of mortgages :
Targeted at the first-time buyers, some conventional loans ask for even 3% of down-payment, which is quite low. But the catch is that the government doesn’t provide any guarantee on Conventional mortgages.
· The Federal Housing Administration (FHA) insures all FHA loans and their asking down-payment can be as little as 3.5%.
· For home-buyers in the rural areas, the U.S Department of Agriculture guarantees USDA loans without any down-payment.
· For current and former members of the U.S Military, the Department of Veterans Affairs guarantees VA loans at zero down-payment.
When it comes to the selection of mortgage terms, the majority of buyers choose the maximum 30-Year mortgage with a fixed rate. If you choose a 15-Year loan instead, the interest rate will obviously be lower, with installments larger in size
5. Research first-time homebuyer assistance programs
This is something that most people do not know or focus on, but the fact is that many states have these first-time homebuyer programs which offer tax credits and lower interest rates coupled with closing cost & down-payment assistance.
6. Compare mortgage rates and fees
Like when shopping for anything, it is the best practice to check and compare prices from multiple vendors. The same is the case with the mortgages and their lenders. Get loan estimates from different lenders and evaluate all parameters including rates, terms, and origination fees.
Some lenders also provide discount points, which can be used to decrease the interest rate if you have an extra amount in hand.
7. Get a preapproval letter
As soon as you are ready to initiate home-shopping, you should apply for a pre-approval with your lender. Your credit scores will be checked, your documents will be scrutinized and your income will be verified. Only after a careful evaluation of your assets, debts, and earnings, the mortgage company provides you this letter.
Having a pre-approval letter from your lender increases your value in a seller’s market and leaves a good impression on the seller. If you have the mortgage preapproval for a certain amount, it means you are a serious buyer and have proof of your affordability in your pocket. It leaves you at an advantage over other home-buyers in the market and may very well increase your chances of securing a good deal.
8. Choose a real estate agent carefully
You can look at the listings of different houses online as well but it won’t give you a good insight into a home as a professional real estate agent. Though selecting an agent that really knows how to do their job properly, is definitely a daunting task. So instead of just hiring someone who appears to be a good choice, speak to a few agents, maybe interview some of them, and request references if you aren’t too sure. A good agent will make the job a lot easier for you and save your money as well by getting you a good deal.
9. Pick the right type of house and neighborhood
There are different types of homes and depending upon your preferences, budget, and lifestyle, you can choose one that suits you best. If you want privacy and security, a single-family home in a gated community might be suitable, but don’t forget to account for homeowners association fees attached to such properties. If shortly, you are expecting to build your family, you can select a house that has some extra space. You may want a starter home or forever home if it meets your needs.
If you are tight on budget, you can also consider looking for a house that requires extensive repairs and up-gradations, a fixer-upper. These houses normally have a lower price tag than other homes that are ready to move-in. You will obviously need to account for the extra budget required for the repairs but the lenders will provide financing in the shape of Renovation mortgages, which will cover the price for the house as well as the remodeling.
If you can afford it, a nice neighborhood is also quite important when it comes to finding a new house. Imagine what facilities are the most important for you, like transport options, educational opportunities, etc., and choose what’s best.
10. Stick to your budget
Being in charge of your financial situation, you know best about your price range when shopping for a house. After setting a cap on the maximum amount, take a look at houses that are substantially below that price, to account for some roam in case you get into competitive bidding.
Your lender may offer you more than you need, but that will create unnecessary financial stress down the lane on you, so avoid crossing the limit you have set for yourself. Sticking to your budget is really important.
11. Make the most of open houses
Photos are not enough to make an informed decision as they can be deceptive and manipulative. By touring the house yourself, you can catch all little details and observe everything first-hand. Check for the noise levels, luminance, the amount of sunlight, and pay close attention to distinctive smells, if any. You can ask different questions during an open-house about the design of the house, age of the plumbing, and type of electrical systems for example.
Nowadays, due to COVID-19, virtual online tours are also getting popular every day. Though not as effective as a physical open house, an online 3D tour also gives you important information necessary to shortlist a house to buy.
12. Pay for a home inspection
Before purchasing a home, checking if everything is working fine is obviously a must and if you are paying for the home inspection, you are eligible to join the professional inspectors on their quest for problems anywhere in the house. A home inspection is supposed to help you make aware of any shortcomings to the house before you close the deal. While you are at it, keep the following points in mind :
The home inspection companies, in their standard packages, do not test for pests, asbestos/molds, radioactive substances, etc. Before you hire an inspector, make sure you know what exactly will be included in the inspection as there may be a few things that you would want to be added to the inspection checklist.
It is significantly crucial to make sure that the home inspector reaches every part of the house including Chimney, Roof, Attic, Basement, or any other storage place where it’s difficult to reach.
Be present at the inspection yourself and accompany the inspector everywhere so that you get to know the house more and you can ask any questions that arise along the way. Though if, for some reason, you are unable to attend the inspection, make sure to go through the inspector’s report in detail and make inquiries if needed
13. Negotiate with the seller
Bargaining and negotiation do save you money but if done wrongly, you can also lose the deal altogether. Before negotiating with a house seller, complete your research about the property and the local real estate market situation. If there are many other houses available in the same price range and not many buyers around, you can get the seller to sweeten the deal. Always consult your agent beforehand about a really good bargain target price when diving into a negotiation with a seller.
There are also some smart ways, where you can get a discount from the seller, other than on the price of the house. Advance payment for repairs and sharing the closing costs are some ideas that might come in handy.There are also some smart ways, where you can get a discount from the seller, other than on the price of the house. Advance payment for repairs and sharing the closing costs are some ideas that might come in handy.
14. Buy adequate home insurance
Insurance is important and a mandatory requirement of your lender as well when you are buying a new home. In the rare case of an incident that damages your newly bought house or your belongings inside, home insurance is a necessity that also gives you peace of mind. Make sure that coverage is enough to cover the cost of completely rebuilding the house if destroyed
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