7 Tips for First-Time Homebuyers: From Planning to SavingJuly 29, 2020
Buying your first home can be one of the most exciting milestones in your life—but it can also be hard to know where to start. We have gathered a few tips for first-time homebuyers to help make the path a little clearer and the process a bit smoother.
When you are looking for a place to rent, it is a bit easier to find a decent space, sign your lease and move in within a short timeline with a relatively quick turn-around. But when it comes to purchasing, you should start planning well in advance. Most experts recommend mapping out your homebuying timeline at least a year ahead of time.
This does not mean you have to wait an entire year to start looking for homes. It is simply a general suggestion to allow yourself plenty of time to save your money, find the right lending options, connect with a great real estate agent, set a budget and do plenty of research on your ideal areas.
During this time, you will also want to take a detailed account of your monthly spending habits, including both essentials (groceries, health care, water, etc.) and non-essentials (entertainment, shopping and social activities). This will help you get a much better idea of what you can afford and what you may need to cut back on once you have taken on the additional expenses of homeownership.
Save, Save, Save
Many first-time homebuyers make the mistake of dipping into most of their existing savings in order to afford their down payment or closing costs. The problem with this is that it allows very little padding room for emergencies or unexpected personal costs.
For this reason, you should establish an emergency fund of at least 3 to 6 months of living expenses in addition to your regular savings. This will protect you if anything comes up before or after closing.
Remember, you will need enough in your savings to cover both your down payment and closing costs. Closing costs typically account for 2-5% of your home’s price.
Find the Right Lender and Real Estate Agent
These two individuals will be your guiding light to finding the best home at the best price. Even though it may be tempting to commit to the first lender and realtor you meet, take your time to shop around for these services.
Shopping around gives you a basis for comparison and the opportunity to make sure you are getting the best deal. As a general rule of thumb, try to compare at least three different lenders and mortgage brokers before making your decision. Compare them on the basis of rates, lender fees and loan terms—and do not forget to consider their customer service and responsiveness.
The same goes for realtors. If you know you would like to live in a certain area, try to choose an agent with a lot of experience selling, showing and listing homes in the area. Make sure you choose an agent that will stick to your guidelines and stay on top of their showings, research and networking to land you the best deal.
Get Pre-Approved for a Loan
Once you have found the best lender, connected with a great mortgage broker, and made sure your finances are in order, it is time to get a preapproval letter. This shows that you are a serious buyer and will make the process of putting an offer on a home a bit faster—and hopefully, more successful.
Know Your Loan Options
There is a common misconception that your down payment needs to be at least 20% of the purchase price. Luckily, this is rarely the case, and you will most likely be able to find an option that works for your budget and may even allow you to put as little as 3% down.
There are a number of special incentive programs and loan options available to first-time homebuyers, including FHA, VA and USDA loans. Your lender will go over these options with you based on your needs. However, you may qualify for these even if it is technically not your first time buying a home. You may be able to lock down first-time buyer benefits if you:
- Have not owned a principal residence for three years
- Have owned a home but have a spouse that has not
- Are a single parent who has only owned a house with a former spouse while married
- Are a displaced homemaker who has only owned with a spouse
- Have only owned a property that was not in compliance with state, local or model building codes
You have plenty of options to help you buy a home even if your credit is not great, or you do not have a large amount of money saved for a down payment.
Research the Neighborhood
It is easy to get caught up in the rush of finding the perfect home that checks all your ideal boxes—but do not forget to check out the neighborhood. In addition to doing your research on things like local crime rates, community programs and traffic, you should also consider your professional and social life and how your ideal neighborhood will fit into that. For instance, how long would your commute to work be? Are there good schools in the area if you have kids or are planning on having kids? Is the neighborhood walkable? What is the demographic of the area?
If you are moving locally, we recommend driving and walking around the area to get a feel for what your daily life would look like there. Your realtor can help you with the more official neighborhood knowledge, such as crime stats, demographics and schools.
Take Your Time and Spend Wisely
The market can be overwhelming for first-time homebuyers, especially if you are looking within a low price point and/or in a popular part of town. It can be tempting to want to rush the process, especially because finding a great place feels so exciting after a long search. But take your time to make sure you have truly landed the best deal.
Additionally, avoid any impulse purchases before or after you have closed on your home. Changes in your credit score can impact your closing process. You will want to avoid making any major purchases or opening new credit cards, especially after you have made an offer on a house.
You may find yourself committing to a home that could use some renovations. While you may be eager to give your place a facelift as soon as you move in, make sure you are being strategic about how much you are spending on aesthetics during the first few months in your new place.
On that note, do not go overboard buying new furniture all at once! Focus on the items you truly need, such as beds, kitchen supplies, tables and appliances.
With a level-headed approach and plenty of support, your homebuying journey will end with you in the home you have always dreamed of.
Buying your first home is an exciting process. Uses these tips for first-time homebuyers to help you take one step closer to homeownership. Are you ready to find your dream home? Explore and compare Perry Homes’ move-in ready properties today to start your home search!