Buying your first home is likely one of the most exciting times of your life. But the process can be stressful and even discouraging when you have no one to guide you through your home buying journey.
In this first-time homebuyer’s guide, we’ll walk you through the basic steps of buying a home.
1. Improve your credit to secure a loan
If you’re trying to navigate how to buy your first home, your very first step should be to check your credit score before working with a lender. For most loan types, your credit score needs to be 620 or higher to buy a house. Of course, there are exceptions to this, like FHA loans from the Federal Housing Administration, an agency under the U.S. Department of Housing and Urban Development (HUD).
If your credit score is lower than 620, however, you should probably work on improving it. To do that, you can:
● Pay off any credit card debt
● Keep credit utilization to 30% or lower
● Dispute any errors you see on your credit report
● Work with a credit counseling agency to improve your credit
Once you’ve raised your credit score enough to qualify for a loan, check with multiple banks to see their interest rates, the length of the mortgage, and how large of a loan you qualify for. Thanks to the internet, you can secure mortgage preapproval and compare mortgage rates online. Some mortgage lenders even have an online calculator to help you calculate:
● Total mortgage amount
● Monthly mortgage payment
● The highest mortgage amount you qualify for
● The highest monthly payment you qualify for
In order to increase the chances a transaction ultimately goes through, it’s important to get that mortgage prequalification letter, which indicates that you’re a serious buyer.
2. Set a budget
Based on your loan pre-approval terms and your income, determine how much house you can afford and what home price makes sense for your financial situation. Most lenders agree that your mortgage payment shouldn’t be more than 28% of your gross monthly income.
As we stated above, you can use a mortgage calculator to help you get a sense of your potential expenses and the home loan amount you can afford. Use one that accounts for other costs such as private mortgage insurance (PMI), property taxes, principal, homeowners insurance, and interest.
Don’t forget that there are all sorts of hidden costs in the homebuying process, which many borrowers overlook. For example, you’ll have to pay for a home inspection, and you’ll have to cover closing costs, too, which include things like title insurance, mortgage loan origination fees, home appraisal costs, and realtor fees, which the seller pays. You may also have to put additional funds into escrow at this point to cover taxes and insurance expenses.
3. Calculate your down payment
The amount of your down payment will depend on the type of loan you apply for and the total purchase price of your home.
For example, conventional loans usually require a down payment of 20% to avoid mortgage insurance. Other lenders, like VA loans and FHA loans, might require a lower amount. As an example, consider a home for $250,000. A down payment of 3.5% is $8,750. If you want to avoid mortgage insurance, however, you’ll have to fork over $50,000, or 20%.
Remember that the more you put down upfront, the less your monthly payments and interest will be (assuming you have a fixed-rate mortgage).
4. Choose an ideal neighborhood
In addition to the price range and affordability, the location of your real estate new home is a vital factor in homeownership. When it comes to location, you’ll want to consider a variety of factors, including:
● Crime rates
● Public amenities (e.g., nearby stores, shops, restaurants, offices, and public transit)
● The potential for natural disasters
● The value of the homes in the area (e.g., a house in New York City costs more than a house in upstate New York)
5. Identify your dream home’s general style
There are so many home styles to choose from, including colonials and midcentury modern homes. The type of style you choose will depend on your preferences and the size of your family. Choosing a general style can help you narrow down your search for the perfect home.
Keep in mind that certain single-family home styles tend to be more valuable than others, depending on the housing market.
6. Consider important home features
What are certain home features you just can’t live without? What key features will make you excited to come home every day? Keep the following features in mind to help with your house-hunting decision:
● The size of the lot
● The number of bedrooms
● The number of bathrooms
● The kitchen layout
● The age, style, and condition of appliances
● The size of the yard
● Smart home features
● Energy efficiency
● Detailed finishes
● Accessibility (e.g., wide doorways, ramps, walk-in tubs, and showers)
7. Figure out the ideal house size and layout
When it comes to buying a first house that’s the right size for your family, consider your wants and your needs. For example, you might want a larger home. But do you really need the extra space?
An ideal house size would have enough rooms per person to sleep individually. This should also include one room for guests and an office. For example, for two adults and one baby, four bedrooms should be suitable.
Anything larger could be difficult to clean and maintain, and could result in higher utility expenses.
8. Research the schools in your chosen area
If you have children or plan on having them, it’s important to think about the quality of schools in the area. To do this, check sites like Zillow for school rankings.
As you’re researching schools, you’ll likely come across both public and private options. If public schools aren’t great in the area, then you might consider private schools for your kids if you can afford it. Researching the quality of schools can help you determine whether the area is right for your family.
9. Factor in your commute
When it comes to buying your first home, the commute time matters. If you don’t want to spend countless hours stuck in traffic on your way to work, then you want a shorter commute.
However, if you find a perfect home that has all the features you want, you might be tempted to overlook a longer commute. But this isn’t a great idea, because you could end up regretting your decision down the road. Plus, a longer commute means higher travel costs, especially gas and car maintenance.
If you ultimately decide to buy a home that extends your commute, consider public transportation. This can help you save on vehicle expenses.
10. Find a real estate agent
Once you’ve settled on the important details that will determine the location and type of home you’re looking for, find a reputable real estate agent. A good real estate agent will take care of all the hard work involved in buying a home by:
- Guiding you through the homebuying process
- Handling price negotiations
- Researching homes for you
- Answering all your homebuying questions
- Showing you homes best suited to your needs
- Sharing information about any first-time homebuyer programs, loan programs and down payment assistance programs
- Telling you about what type of mortgage might be best for your situation
- …and more!
Buying a home for the first time can be scary at first. But when you understand the process and know which steps to take, the home purchase experience can go a lot more smoothly.
As you begin going to open houses and researching properties online, it’s important to know your eligibility for certain loans and assistance programs. Or, if your personal finance situation is rock solid, you may be best off securing a mortgage preapproval letter and begin working your way to the best mortgage you can secure — and, ideally, a smooth closing process.
Now that you’ve read this homebuyer guide, it’s time to continue your learning. If you have any questions during the process, get free advice from a real estate expert.