14 1/2 Things To Think About When Buying Your First Home

Here are 14 things to think about when buying your first home.

To successfully buy a home, you need to pay close attention to and carefully plan out each step of the process, just like with any other important task. With the help of these tips for first-time home buyers, you'll be able to get through the process, save money, and finish the deal. We put them into the four following groups:

• Getting ready to buy some hints.
• Tips on how to choose the best mortgage.
• Tips for shopping homes
• Advice on how to buy a house

Tips for Getting Ready

1. Start saving as soon as you can.

When saving for a home, the following are the most important costs to think about:

• The amount of the down payment you have to make will depend on the lender and the type of mortgage you choose. There are some conventional loans for first-time buyers with good credit that require as little as a 3% down payment. But it might be hard to save up enough money for even a small down payment. For example, 3% of the price of a $300,000 home is $9,000, which is the down payment. First, use a down payment calculator to set a goal, and then set up automatic transfers from your checking account to your savings account.
• Closing costs are the fees and charges you have to pay in order to finish your mortgage. They are usually between 2% and 6% of the total loan amount. The closing costs for a $240,000 loan could be anywhere from $4,800 to $14,400. You'd have to come up with that amount on top of the money you put down on the house. If the market is good for buyers, you may be able to negotiate with the seller to have them pay some of your closing costs. Also, if you shop around, you might be able to save money on certain costs, like home inspections.
• After you buy a house, you'll find that you need some money to pay for moving costs. Set aside some money to pay for immediate home repairs, furniture, and maintenance.

2. Figure out how much monthly mortgage you can really afford

Before you start looking for a house, you should first figure out how much you are willing to spend. Online affordability calculators can help you figure out a price range that makes sense for you based on your income, debt, down payment, credit score, and where you want to live.

3. Check your credit and work to make it better.

Your credit score will determine whether or not you can get a mortgage, and it will also affect the interest rate that lenders are willing to give you. In general, a better score will get you a lower interest rate. If you want to buy a house, here are some things you can do to improve your score:

• Request free copies of your credit reports from Experian, Equifax, and TransUnion, and look over them carefully for mistakes that could hurt your score.
• Always pay your bills on time, and try to keep the balances on your credit cards as low as you can.
• Keep all of your credit cards in good standing. When you cancel a card, the amount of your available credit that is already used will go up, which could hurt your credit score.
• Keep your credit score in mind at all times. Anyone can get a free credit score from NerdWallet that is updated every week.

4. When making your choice, think about the different mortgage options you have.

There are many different mortgages to choose from, and each has its own rules about who can get one and how much they need to put down. Here are the main ways to divide things:

• The government does not provide a guarantee for regular mortgages. There are some conventional loans for first-time buyers that only require a 3 percent down payment.
• FHA loans are insured by the Federal Housing Administration. With an FHA loan, you can put down as little as 3.5% of the total loan amount.
• The United States Department of Agriculture backs the loans that the USDA gives out. They are for people who want to buy a home in a rural area, and most of the time they don't require a down payment.
• VA loans are backed by loans from the Department of Veterans Affairs. They are for people who are in the military or who have been in the military, and they usually do not require a down payment.

You also have options when it comes to the length of the mortgage term. Most people who buy houses get a 30-year mortgage with a fixed interest rate that they can pay off in that time. Most of the time, the interest rate on a 15-year loan will be lower than the interest rate on a 30-year mortgage, but the monthly payments will be higher.

When interest rates are expected to go up, you might want to think about getting an ARM, which stands for "adjustable-rate mortgage." Most of the time, adjustable-rate mortgages (ARMs) have lower interest rates than fixed-rate mortgages. This means that you can buy a more expensive home while keeping your monthly payment the same. Be careful to calculate how you can handle it if rates increase though!

5. Do research on Federal, state and local programs that help people buy their first home.

Many states and some towns and counties have programs to help people buy their first homes. These programs often offer low-interest mortgages, help with the down payment, and help with closing costs. There are also tax breaks for first-time home buyers through programs that are made just for them.

6. Compare the interest rates and costs of different mortgages.

The Consumer Financial Protection Bureau tells people to get loan estimates for the same kind of mortgage from several different lenders so they can compare the costs, such as the interest rates and any possible origination fees.

Lenders may give borrowers the option to buy discount points, which are costs that are paid up front in exchange for a lower interest rate. Buying points can be a good investment if you have the money and plan to stay in the house for a long time. Use a discount points calculator to decide.

When the market is good for buyers, some sellers who want to sell may offer to pay some or all of the buyer's points to get the deal done.

7. Get a preapproval letter

A mortgage lender's preapproval is an offer to lend you a certain amount of money under certain conditions. A preapproval letter shows real estate agents and sellers that you are a serious buyer. It also gives you an edge over buyers who haven't taken this step in the process of buying a home yet.

You should fill out an application for preapproval before you start looking for a home. A lender will look at your credit report and the paperwork you give them to check your income, assets, and debts. If you apply for preapproval with more than one lender to compare interest rates, it shouldn't hurt your credit score as long as you do it within a certain amount of time, like a month.

Home Shopping Tips

8. Be picky about the real estate agent you choose.

A good real estate agent will do a thorough search of the market to find properties that meet your needs and will guide you through the process of negotiating and closing. Ask people who have recently bought homes for recommendations on real estate agents. Talk to at least a couple of different agencies and ask for references. When you talk to potential real estate agents, ask them how they have helped first-time home buyers in your area and how they plan to help you through the process of buying a home. You could also ask them how they find homes that aren't on the market yet. This is a skill that can be useful when there are a lot of buyers competing for the same home.

9. Make sure you choose the right kind of home and neighborhood.

When comparing the different types of homes, you should think about how you live and how much money you have. Because the walls are shared, there will be less privacy in a condo or townhome. But these kinds of housing might be less expensive than single-family homes. Don't forget to include the cost of homeowners association fees in your budget when looking at condos, townhomes, and houses in planned or gated communities.

Investing in a single-family home that needs repairs or renovations is another option that should be thought about. Most of the time, fixer-uppers sell for less per square foot than homes that are already ready to move into. On the other hand, you might need more money in your budget for repairs and renovations. A renovation mortgage is a loan that covers both the cost of buying the house and the cost of making changes.

Think about your long-term needs and decide if a starter home or a home to stay in forever would be better for you. If you want to start a family or add to it, it might make sense to buy a home with enough room for the family to grow.

Do as much research as you can on any possible neighborhoods. Choose the one that has the most important features for you, like schools and entertainment spots close by. Also, make sure to check out how long it takes to get to work during rush hour.

10. Stick to your plan for your money.

You might get an offer from a lender to borrow more money than is comfortable for you, or you might feel like you have to spend more than you want to in order to beat out another bidder's offer. Make a range of prices that fits your budget, and then promise to stay within that range. This will keep you from having to worry about money in the future.

You might want to look at properties that are priced below your maximum to give yourself some wiggle room when bidding in a competitive market. When the market is good for buyers, you might be able to look at homes that cost a little bit more than your limit. Your real estate agent should be able to give you an initial offer price range.

11. Use open houses as much as possible.

As technology has gotten better, more and more people use online 3D home tours. With these tours, customers can virtually walk through a home at any time of day and look at details that are hard to see in a picture. They don't tell you everything you can learn from a personal inspection, like how the carpets smell, but they can help you narrow down the list of houses you need to see.

When seeing homes in person, be sure to keep your senses open. Pay attention to any smells or sounds that might be there, and look at the inside and outside of the house to see how it is in general. Ask about the type of roofing material and how old it is. Also ask about the electrical and plumbing systems.

Tips on How to Buy a House

12. Spend money on professional inspections of your home.

A home inspection is a thorough look at the structure and mechanical systems of a house. Hiring a professional inspector will give you the information you need to decide whether or not to buy the property. Here are some things to keep in mind:

• Tests for things like radon, mold, and insects are not part of a typical home inspection. Make sure you understand everything that will be checked, and ask your agent if there will be any other inspections.
• Make sure the home inspectors can get to all parts of the house, including the attic and any crawl spaces there may be.
• Most of the time, it's best for the buyer to be there for any inspections. If you go through the house with the inspectors, you will learn more about it and have the chance to ask questions as they go. If you can't go to the inspections in person, read the reports carefully and ask questions about anything you don't understand.

13. Talk with the seller about a price.

You might be able to save money if you ask the seller to pay for repairs in advance or if you negotiate a lower price to account for the cost of repairs you will have to make in the future. You also have the option of asking the seller to pay for some of the closing costs. Keep in mind, though, that lenders could put a limit on how much of the closing costs the seller has to pay.

How much negotiating power you have will depend on the state of the local market. When there are more people who want to buy homes than there are homes for sale, it is harder to get a good deal. Work with your real estate agent to learn about the local market and come up with a plan that takes this information into account.

14. Make sure you have enough home insurance.

Your lender will require you to buy homeowner's insurance before you can finish the deal. Your homeowner's insurance will pay to fix or replace your home or belongings if they are damaged by something that is covered by the policy. If you are to blame for someone else getting hurt or having an accident, their liability insurance will also cover you. Buy a level of homeowner's insurance that will pay to fix or replace your home if it is damaged.

An umbrella policy can be a good investment for you if you need insurance for your home, car, and other valuable assets.

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