First Time Homebuyer Tips & Checklists
You’re planning to buy your first home. It’s a milestone that comes with major decisions and serious financial commitments. Let’s look at proven strategies that can help you through every step of the home-buying process.
Top Tips for First-Time Buyers
While many aspects of home buying deserve consideration, some top-line takeaways rise above others.
These include:
- Check Your Credit. You can get a free credit report from each of the three major credit bureaus: Equifax, Experian, and TransUnion. Check the report for errors, which you can dispute, and improve your score if needed. You want a minimum of 620 for a conventional loan and above 500 for an FHA loan.
- Get Pre-Approved. Having a mortgage pre-approval letter in hand is an optimal way to enter the home-buying market. It helps you understand your budget, and sellers understand you’re serious.
- Budget Beyond the Down Payment. You should factor in closing costs, which are usually between 2% and 5% of the loan amount. Consider property taxes, insurance, maintenance, and repairs. And moving costs.
- Explore Loan Programs. About half of first-time homebuyers choose conventional mortgages. About three in ten choose FHA loans. A mortgage professional can advise you on the program that suits you best.
- Prioritize Needs Over Wants. A pool? A media room? They’re probably “wants.” Best to focus on needs such as location and bedrooms.
- Avoid Major Financial Changes. New lines of credit. Switching jobs. Changing bank accounts. Major purchases, such as cars. They can all jeopardize loan approval.
- Work With a Trusted Realtor. An agent with experience in the local area can offer invaluable insights and help you negotiate a better deal.
- Inspect Thoroughly. You can accompany the home inspector during the inspection. Uncovering issues before buying could save you thousands.
Key Terms You Should Know
As you navigate the home-buying process, these terms will be essential:
- Down Payment. The upfront cash you pay (typically 3% to 20% of the home’s price) to secure a mortgage loan.
- Pre-Approval. Which is a step up from prequalification. With pre-approval, a mortgage professional reviews your finances and gives you a written commitment saying how much you could likely borrow.
- Closing Costs. These usually include appraisals, title insurance, loan origination, taxes, deed recording, notary fees, and others.
- PMI (Private Mortgage Insurance). It’s required for a conventional loan with less than 20% down payment.
- Fixed vs. Adjustable-Rate Mortgage (ARM). A fixed-rate mortgage has the same interest rate for the loan’s term. The rate for an ARM changes periodically after an initial fixed period.
- Escrow. Most mortgages come with an escrow account managed by your mortgage professional to pay property taxes and insurance.
- DTI (Debt-to-Income Ratio). It’s your monthly debt payments divided by your gross income. Mortgage professionals use DTI when determining loan terms.
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A Checklist: Before the Home Search
Before house hunting, these steps can deliver significant benefits:
- Know Your Price Range. Mortgage pre-approval can tell you exactly how much house you can afford.
- Gather Your Documents. These can include proof of income: pay stubs, W-2 forms, and federal tax returns. Proof of assets: bank statements and investment statements. And proof of debts: credit cards, car loans, student loans, and existing mortgages.
- Research Assistance Programs. There are many federal, state, and local home-buying assistance programs that help first-time buyers.
- Define Your Needs. Make a list of your wants, needs, and must-haves. The checklist will help you to find suitable properties faster.
- Research Neighborhoods. School districts. Traffic. Crime rates. Walkability. Public transportation. These and other factors can help determine if a location is right for you.
A Checklist: During the Home Search
As you tour homes, keep these essentials in mind:
- Stick to Your Budget. Don’t get tempted by homes outside your price range. Even a little. That may mean rethinking your square footage requirements, location desires, or accepting a home that needs some work.
- Thoroughly Evaluate Properties. You can check out a lot before an inspector evaluates the home. Stains on walls or ceilings could indicate water leak issues. Small holes in woodwork might be signs of pests. Test appliances, HVAC systems, plumbing, and electricity.
- Check Neighborhood Noise Levels. Not just when you tour a home. If you’re serious about the house, visit the neighborhood in the evening and on different days to gauge the noise levels.
- Compare Similar Homes. You might make a spreadsheet to list prices, features, and the pros/cons of the homes you’re considering.
- Consider Resale Value. Real estate agents regularly conduct comparative market analyses (CMAs) that offer snapshots of the current market and compare a property’s value to others in the area.
- Be Ready to Act Fast. Have your pre-approval letter in hand and earnest money ready. When you find the right home, bid on it.
- Stay Emotionally Balanced. Home buying can be an emotional roller coaster; if a deal doesn’t feel right, take a deep breath and walk away.
Before You Make an Offer…
Before making an offer on a home, ask these key questions:
- Why is the seller moving? They could be downsizing. It could be for work and have a timing factor. Understanding their motivation could strengthen your negotiation power.
- What’s included in the sale? You should clarify with the owner and the selling agent which appliances, fixtures, or furniture will remain.
- Are the major systems in good condition? Ask about the age of the roof, HVAC system, water heater, and plumbing. Repairing or replacing an old system can be costly.
- Have there been any recent repairs or renovations? Request documentation for past work and permits, including guarantees.
- What are the utility costs? Looking at the past utility bills will give you an idea of what you’ll pay.
- Are there any known issues? Most states have laws requiring sellers to disclose material defects. You should still ask.
- Are there any upcoming special assessments? These assessments are fees levied on homeowners by a property association. You should know if any are coming your way.
As you move through the home-buying process, try to be patient, ask questions, and rely on mortgage and real estate professionals when needed. We can help you there. Call us at 1-888-505-8960 or connect with us online today.