If you’ve never purchased a home before, you might think it involves some combination of skimming properties online, attending showings and open houses, and unpacking boxes inside your new living room. While those elements exist and are exciting to daydream about, navigating the actual home-buying process requires diligence, discipline, and patience. The following tips are to help ground first-time buyers like you with a base of knowledge from which you can confidently start your home-buying journey.
Tip #1: It's all about the money.
Before you even begin your home search, it's important to do a self-audit to determine your financial health. Weighing your assets against your debt and getting a detailed credit report will give you an idea of your budget and what kind of home you can afford. Your credit score, in particular, will impact your ability to get a mortgage. Paying your bills on time, keeping your balances low, and having a long credit history are a few ways to boost your score. Another thing to remember: your down payment for a home in most major metropolitan markets will likely be around 20-30% of the home's total price, so you'll need to have cash on hand to cover this expense. It will also vary depending on several factors – your existing banking relationship, whether you are purchasing a condo, co-op, or townhouse, and whether the purchase is for a primary residence.
Tip #2: Read up on your mortgage options.
There are four main types of mortgages: conventional, FHA, USDA, and VA. Most people will pursue a conventional loan from a private bank or an FHA loan backed by the federal government. USDA and VA loans are for rural homebuyers and veterans, respectively. Spend some time comparing term lengths, interest rates, and lender fees from different institutions before you commit to a specific one. Once you've found one that suits your financial situation, make sure to get a signed preapproval letter so that sellers and agents know you're serious about buying. Most importantly, if you've gone into contract and have already put down a deposit, a preapproval letter will provide you with a form of protection in the event your bank doesn't live up to their end of the bargain by issuing you a mortgage (assuming your financial statement has not changed in any material way).
Tip #3: Look beyond the list price of the home.
They aren't so much hidden fees as they are overlooked expenses, but many first-time buyers focus only on the price of the home and forget to consider the additional costs that go into the process. Attorney fees, closing costs (title insurance, mortgage recording tax, and mansion tax are the main ones), future repairs, and move-in expenses should all go into your initial budget calculations.
Tip #4: Get the most out of an agent.
While some buyers forego the services of an agent, many others find the experience and expertise of a licensed agent comforting and beneficial. When you're looking for an agent, the most important thing to remember is that your agent understands who you are and what you want. Developing trust with your agent will go a long way to making the entire home-buying process more rewarding.
Tip #5: Pick your home.
It might feel right at first sight, but thinking a little deeper about what you want to get out of a home will help you confirm if those positive feelings are more than a mirage. Imagine how you will use each room rather than what the room will look like once you put your personal touches on it. If you think the location is perfect, make sure it's perfect day and night by visiting the neighborhood at different times. Hiring a professional inspector to do a full walk-through of a home you're interested in is also a worthwhile consideration. If it’s a townhouse, it might be wise to have a trustworthy general contractor or architect join you as well.
Tip #6: Offer and negotiate.
Work with your agent to determine the size of the offer that you're comfortable making. Remember, a seller doesn't have to counter every offer they receive, so there is a risk of coming in too low. A competitive offer will kick-off a period of negotiation where you and the seller can come to terms. Your agent will be very helpful to you during this time and can guide you using their experience from past negotiations and their overall knowledge of the market.