Buying a home for the first time is an exciting and daunting task. You’re finally ready to take homeownership, but where do you start? Homes are a significant investment, considering now that they cost around $420,000.
Additionally, buying a home is complicated and can be overwhelming. That’s why you must know about the essentials. Here are five essential things every first-time homebuyer needs to know before starting the process.
Get Pre-Approved For A Mortgage
The first step in home buying is getting pre-approved for a mortgage. This means going to a lender and proving that you have the income and credit score necessary to qualify for a loan. Getting pre-approved is vital because it will give you an idea of your budget and will make you more attractive to sellers when you do find a home. Keep in mind that just because you are pre-approved for a certain amount does not mean you have to spend that much—it’s still important to stay within your budget.
Start Saving For A Down Payment
Traditionally, buyers are expected to put down 20% of the home’s purchase price as a down payment. However, loan options are available that allow for a lower down payment and may even pay the downpayment for you. Here are some loans that offer to pay the downpayment for you:
VA Loans
The Veterans Administration offers loans to eligible veterans, active duty service members, and reservists. To qualify, you must have a good credit score and a steady income. One of the benefits of a VA loan is that you can get 100% financing, which means you don’t need a down payment. VA loans also don’t require private mortgage insurance (PMI), even if you don’t have 20% for a down payment.
USDA Loans
The United States Department of Agriculture has a loan program for buyers in rural areas. This program was created to help spur economic development in rural areas by making homeownership more affordable. Like VA loans, USDA loans offer 100% financing. In order to qualify, you must have a household income below a specific limit and be looking to buy a home in rural areas in the country.
FHA Loans
Federal Housing Administration loans are available to all buyers, not just first-time homebuyers. FHA loans have more relaxed credit requirements than other loan types, allowing for a lower down payment (as low as 3.5%). One downside of FHA loans is that they require borrowers to pay mortgage insurance, even if you have 20% for a down payment.
Regardless of which route you take, loans that cover the downpayment for you are great because it means you won’t have to save as much money beforehand.
Know What You Can Afford
It’s essential to have a realistic idea of what you can afford before starting your house search. In addition to your monthly mortgage payments, you should also consider things like property taxes, utilities, homeowners insurance, and potential repairs or renovations when determining how much house you can afford. Here are some principles to follow when knowing what you can afford:
- Housing costs should not exceed 28% of your gross monthly income.
- Total debt repayment, including your mortgage, should not exceed 36% of your gross monthly income.
- Never go above your means to get into a particular neighborhood or school district—you may regret it later.
Start by looking at your monthly income and debts to understand what you can afford. From there, you can start looking at homes in your price range.
Find A Good Realtor and Lawyer
Last but not least, finding an excellent real estate agent is one of the most important things you can do when buying a home for the first time—they will be your guide throughout the entire process and will help make sure things go smoothly from start to finish. When interviewing potential agents, be sure ask about their experience working with first-time homebuyers as well as their knowledge of the area where you’re looking to buy—you want someone who knows the ins and outs of both the buying process and the neighborhood where you hope to find your dream home!
You should also hire a lawyer to help you out. An experienced real estate attorney can give you a lot of advantages. These advantages include ensuring the contract is fair, reviewing documents, and helping negotiate repairs. They can even help you in the future with things like refinancing and homeowners association issues.
While buying a home for the first time may seem daunting at first glance, understanding the basics of the process is half the battle. With this knowledge, you can confidently enter homeownership, knowing that you’ve taken all the necessary steps to make your dream a reality!
