Purchasing a home is a huge investment—probably the biggest one you'll ever make. It's natural to have a lot of questions and feel overwhelmed. Home buying can be enjoyable if you’re prepared and know what to expect.
It’s a daunting but exciting process. If you're a first-time buyer, keeping these tips in mind will help to find the perfect home in no time.
Setting Your Budget
Buying a new home is an investment. It is essential to consider how much money you should allocate. It's easy to get caught up in the market price of your dream home, but don't forget about the other expenses that come with buying a house.
Here's what to remember when setting a budget:
1. You may need to pay more than just the down payment.
In addition to the price of the property, you may also be required to pay closing costs depending on your agreement with the seller. Before finalizing your purchase, you will most likely need to pay for a home inspection, which is about $339 on average.
The price of the inspection depends on the size of your home.
2. Think about moving expenses.
Many people underestimate the total cost of moving when they are in the planning stages. While it is important to factor in the value of items like a moving truck and packing supplies, other expenses can add up quickly.
Here are the usual moving expenses to keep in mind:
- Professional Movers
- Moving Insurance
- Moving Supplies
- Moving Truck Rental
- Storage Unit Rental
- Fragile Item Moving
- Packing and Unpacking Services
- Long-Distance Moving Costs
3. Know what your mortgage payments cover.
If you've just purchased a home or are considering doing so, you're probably aware that you'll have a mortgage payment each month. But what exactly does that payment cover?
Here are the four mortgage payment components:
Most mortgages incorporate the principal, interest, taxes, and insurance into the monthly payment. Some people find a loan that excludes these expenses. The advantage of this is a lower monthly bill. However, you must then pay taxes and insurance separately.
4. Prepare for maintenance costs
In rented properties, the landlord will be shouldering the cost of any repairs or appliance replacements. If you own a house and something ends up breaking, it'll be your responsibility (both financially and physically) to sort it out.
On average, homeowners should budget 1% to 2% of their home's value annually for upkeep and maintenance. Maintaining emergency savings is crucial for all homeowners, as the expenses may be higher than in other years. So having these funds set aside will help alleviate any financial stress in the future.
5. Build your emergency fund before purchasing a house
An emergency fund is essential to cover unexpected expenses, and you shouldn't put off building one just because you're saving for a house. Experts say you should have at least three to six months' worth of living expenses saved up before you start looking for a home.
Although it may be tempting, do not use all of your savings for a down payment on a house. Always remember to keep some money aside for emergencies or unexpected repairs.
6. Determine how much you can spend each month.
While there is no hard and fast rule, a good guideline to follow when buying a house is to spend no more than three times your annual salary. That being said, you don't have to put that much money into a home.
If you're working multiple jobs but don't plan on keeping both of them long-term, only include one income in your budget.
Getting the Down Payment Ready
Coming up with a down payment is one of the most difficult parts of the home-buying process. For many people, this may seem like a challenging task. But, it is possible to save up for a house down payment with planning and diligence.
Here are a few tips to help you save for a house down payment:
7. Earn more and minimize expenses
If you're looking to buy a house shortly, there are several things you can do to reduce your expenses and increase your income. One way to save money is to reduce your housing costs. If you're currently renting an apartment, try moving to a less expensive area or downsizing to a smaller apartment.
You can also save money by cutting unnecessary expenses, such as cable TV, subscriptions, or club memberships. Aside from that, applying for a better-paying job, making extra money through side hustles, or investing can help.
8. Set aside 20% of the property cost.
Since you’ve already determined the maximum amount you would spend on a house, aim to set aside 20% of that price for your down payment. You can earn better rates and keep from having to pay private mortgage insurance by doing so. PMI is generally required on any home loan when the buyer puts down less than 20%.
Getting a Trusted Agent and Loan
Try asking several major mortgage brokers for their recommendations and call the agents to interview them. You can talk with big real estate brokerages and ask them to refer lenders.
Call each one of the referrals and interview them thoroughly. Through this, you can discern which lender is ideal for you based on your interests and the rates they offer.
9. Interview your real estate agent.
When looking for a real estate agent, be sure to ask them questions as if you were interviewing a babysitter for your child. A good agent will have no problem answering any queries you might have. These questions should revolve around their past clients' satisfaction levels, how well they know the area in question and compensation methods.
10. Look for different mortgage rates.
One of the first things you'll need to consider before buying a house is to apply for a mortgage. But with so many different lenders, it can be tough to know how to compare mortgage rates and find the best deal.
Here are the top tips to help you compare mortgage rates and get the best deal on your dream home.
- Know your budget and credit score ahead of time.
- Get multiple quotations from different lenders.
- Negotiate with lenders for a better rate.
- Choose a loan that works best for you.
Comparing mortgage rates can be time-consuming. But, it is essential if you want to get the best deal possible on your home loan. Make sure you compare apples to apples by looking at loans with the same terms.
11. Look for trusted lenders.
You've found the perfect house. It's got everything you've ever wanted and is within your budget. The only thing standing in your way is finding a lender who can give you the loan you need to make your dream come true.
But beware! Not all lenders are created equal. Picking the wrong lender can cost you thousands of dollars and cause months of delays. So it pays to do your homework before making such an important decision.
12. Get a pre-approval letter.
A pre-approval letter is a document that indicates how much money a lender is willing to lend you for a home purchase. The amount of money you're approved for is based on your income, credit score, employment history, and other factors.
It is one of the first things you should obtain when you look for a home. A pre-approval letter tells sellers you're a serious buyer, which gives you a competitive edge over buyers who don't have one.
What to Consider When Looking for a Home
Although it may not seem like it, you can do a lot to your home without spending much money. For example, if you don't love the color of your walls, simply painting them will make a big difference. If the carpet is old, you might be able to replace it with hardwood floors for less than $1,000.
However, there are certain areas you can't resolve quickly or cheaply.
13. Inspect these things during house tour
It is unlikely to find a home that caters specifically to your taste unless you design and build it yourself. These are the things you need to check when touring a house:
- Roof and windows
- Wall and floor
14. Scout for your preferred location
It's important to pick a neighborhood you'll be content with for many years, especially if you plan on living there long-term. Besides work, consider your proximity to grocery stores, eateries, and medical facilities.
Also, consider the amount of traffic, crime rate, and noise levels. Another good suggestion is to commute to and from work during rush hour to gauge just how bad traffic might be.
Find the Perfect Home Today!
Buying a home is exciting but also comes with its fair share of challenges. As a first time buyer, these tips can make the whole process easier.
Before making a purchase, do your research. Make sure you're aware of all the ins and outs of the home buying process. Find the perfect home today!