Every piece of advice you read on how to buy a home for the first time should start with budget talk. Chasing your dream home right off the bat is a terrible idea because it leads you into making decisions you can barely afford. If you have one catastrophic event or unexpected expense, it’s Foreclosure City!
You have to set a sensible budget. When calculating, start with your down payment. Recommendations range from 10-20 percent. If you don’t have that much liquidity, some loans will allow you to go as low as 3 percent.
The down payment is important because it can keep you from having to pay costly mortgage insurance on top of your house payment and homeowners insurance (often worked into your payment).
Also, leave room for closing costs, furniture, and relocation expenses. Lastly, as the Federal Trade Commission points out, you should obtain lending rate quotes from more than one source.
2. Get Preapproval Sooner Rather Than Later
Once you have your budget in order, get a letter of preapproval as soon as you can. That way, if any unexpected medical bills or expenses hit, you’ll be locked into the process.
Also, be mindful of credit checks. Take care of any potential issues by paying off past due accounts and making payments on time. Lastly, don’t open new credit accounts at any point during the process as it could adversely affect your credit score and elevate interest rates.
3. Study All Loan Options
First-time homebuyer programs exist to help individuals and couples just starting out attain favorable terms for the purchase of their first home. But beware: many of these programs require the owner to live there for a period of time or lose tax benefits/equity if forced to move out early.
Should terms be too restrictive, you may want to save longer, wait until your credit score is higher, or buy a less expensive home. Getting the loan you want is just as important as getting the home you want.
4. Buy With the Future in Mind
With any luck, first-time homebuyers, your first home will be a stepping stone towards your dream home. Therefore, you should buy with reselling in mind.
Target a good neighborhood and school district. Also, avoid distressed purchases, such as foreclosures, auctions, and bank sales. These properties tend to come with baggage (i.e., structural problems, poor locations, potential health issues, costly repairs, etc.).
5. Visit All Properties in Person Before Getting Attached
Pictures may be worth 1,000 words, but they also can be deceiving. Don’t fall for a house until you’ve seen it in person. Any property that makes your shortlist mandates an in-person visit.
If you’re unsure of where to start, look for a parade of homes in your area. You can read more about what a parade of homes is in your own time, but the core value of it is this: it gives you a chance to ask about issues like recent home inspection reports; hazard testing, like for radon, mold, or termites; and any potential yard issues.