Graham Smith
Written by Graham Smith
Last updated: Feb.23,2022

Looking to buy a home for the very first time? It is natural to feel excited, yet nervous, but there is nothing to worry about if you proceed systematically. First-time buyers get access to many state programs, tax breaks, and federally backed loans (if you can’t pay the minimum down payment of 20%). 

Tips to remember before buying

Save, save, save

This might sound clichéd, but keep in mind you are investing in property, so you will need a considerable chunk of cash for a down payment and the payments that follow (paying off loans, mortgage, repairs, etc.). The down payment depends upon the type of mortgage you choose and your lender. First-time home buyers might be able to avail of conventional loans, where the down payment is as low as 3%. Use a down payment calculator to find out how much you have to save up.
You also have to keep closing costs in mind – it includes the fees and expenses you have to pay for finalizing the mortgage. They usually range from 2% to 5% of the loan amount. Moreover, you will require some cash right after purchasing the home, for repairs, upgrades, furnishings, and other move-in expenses.

Take a peek at your financial health

Yes, you want to buy the best possible home for yourself and family, but prior to that, you need to perform a serious audit of finances. Thus, you are better prepared for the purchase and ongoing expenses. You require an emergency savings account with at least 3 to 6 months of living expenses. As mentioned, there will be down payment and closing costs, but you have to put away money not only for those expenses, but for emergencies as well. 

You have to know exactly how much you spend each month and where it goes. This amount tells you how much to allocate to mortgage payments. Include everything such as utilities, food, car maintenance and payments, student debt, clothing, kids’ activities, entertainment, retirement savings, regular savings, and so on.

Decide your affordability

You can’t randomly decide how much you can afford and then go to a bank for loans. Banks might give you a loan for more than what you want to pay for. First-time buyers often make the mistake of borrowing too much. After making monthly mortgage payments, they are left with very little to cover for other expenses like food, utilities, and so on. 

The total cost of the house has to be factored in; not just the monthly payment. Find out the property taxes in your chosen area, homeowner’s insurance you have to pay, what you have to shell out to maintain or upgrade the house, closing costs, and so on. There are affordability calculators that can help to set a price range based on income, debt, down payment, credit score and where you plan to live.

Don’t forget to check your credit

To qualify for a home loan, you need good credit, history of paying bills in a timely manner, and maximum debt-to-income ratio of 43%. Nowadays, lenders prefer to restrict housing expenses that include principal, interest, taxes, and homeowners insurance, to around 30% of the borrowers’ monthly gross income. However, this figure could vary depending upon the local real estate market.

Look into first-time home buyer assistance programs

There are many states, and some cities and counties that offer first-time home buyer programs. They often combine mortgages that have low interest rates, with down payment assistance and closing cost assistance. These programs often provide tax credits too.

How to choose a house?

There is no simple answer to this question, as you have so many options while purchasing a residential property. 

Be sure to select a real estate agent carefully

Remember that a good real estate agent will put in the time and hard work required to search the market for homes that meet your specifications. They will also guide you through negotiations and closing. You could get referrals from other recent home buyers. Talk to few agents and ask for references. Ask about their experience in helping first-time buyers in your market.

Select the right type of house and neighborhood

You have lots of options here. For example, there are single family homes, duplexes, townhouses, co-operatives, multi-family buildings, condominiums, etc. Remember to weigh the merits and demerits of each choice and take your homeownership goals into account, before deciding on the type of property that aligns with your objectives.Some first-time buyers save on the purchase price by opting for a fixer-upper (single-family home in need of updates or repairs), but you have to spend a lot of time, effort, and money, to transform it into your “dream home”.

Don’t forget about sticking to a budget and the kind of lifestyle you lead. If you consider condos and townhomes, or properties in planned/gated communities, you should include homeowners’ association fees too. The type of neighborhood also plays a crucial role here. If you plan to move in with children, a family-friendly area is a wise choice. Alternatively, you could choose a neighborhood that is close to your workplace. While purchasing homes, you need to visualize long-term needs before coming to a decision. 

Take advantage of open houses

Due to the Covid-19 pandemic, the world almost came to a standstill, as every aspect of our lives became digital. During this time, online 3D home tours have gained immense popularity. Shoppers get to do a virtual walk-through of a home at any time of their convenience. It gives them an opportunity to check out details that aren’t apparent in regular photos. Virtual home tours help to narrow down list of properties to visit. 

Don’t be afraid to ask questions while touring in person. Check out the overall condition of the property, inside and out. Don’t forget to look at the electrical and plumbing systems and the roof as well.

How to choose a mortgage?

Weight your options

There are quite a few mortgage options available with varying down payment and eligibility criteria. 

  •  Conventional mortgages – these aren’t guaranteed by the government. In fact, some conventional loans are meant for first-time buyers, with very little down payment.
  • USDA loans – these are guaranteed by the U.S. Department of Agriculture. They are specifically for rural home buyers, and typically don’t require down payment.
  • FHA loans – these are insured by the Federal Housing Administration. Down payments can be as low as 3.5%.
  • VA loans – the Department of Veterans Affairs guarantees these loans. These are meant for present and veteran military service members and usually require no down payment.

Choose your mortgage term carefully. For instance, if you opt for a 30-year loan term, which most home buyers choose, it is paid off in 30 years. The interest rate remains same. On the other hand, a 15-year mortgage loan generally has a lower interest rate as compared to a 30-year loan, but monthly payments are more. 

Find out how much mortgage you qualify for

You need to have an idea of how much a lender will give to help purchase your first home. You might think a $300,000 home is affordable, but lenders could think otherwise, and only loan you $200,000 based on factors like how much other debt you have, your monthly income, and how long you have been at your current job. Some real estate agents won’t even bother with clients who haven’t given a clear picture about how much they can afford.

An excellent way to determine how much of a mortgage you might qualify for is to use a mortgage calculator. It requires parameters like income, monthly debt obligations, how long you have worked with your current employer, credit score, etc. Thus, you get a precise estimate of the mortgage amount and interest rate that you might qualify for. 

Compare mortgage rates and fees

According to the Consumer Financial Protection Bureau, you should shop around to get loan estimates for the same kind of mortgage from several lenders. It helps to compare costs, along with interest rate. Lenders may offer the opportunity to buy discount points, which are fees the borrower pays upfront to lower the interest rate.However, buying points is only feasible if you have the cash on hand and intend to stay in the home for many years.

A general rule of thumb that lenders abide by, while determining mortgage affordability, is for the estimated mortgage payment to be no more than 28% of a borrower's monthly income (after taxes). Lenders take a peek at annual income, total monthly debts, down payment, debt to income ratio, interest rate, term, estimated taxes and insurance, as they calculate how much they will give to a borrower.

Get a pre-approval letter

Before placing an offer on a home, you should get pre-approved for a loan. Sellers might not accept an offer that doesn’t have mortgage pre-approval – it is the lender’s offer to loan a certain amount under particular circumstances. Apply for a mortgage, complete the necessary paperwork and you will receive this letter. A pre-approval letter reassures sellers and real estate agents that you are a serious buyer, thus giving you an edge over other buyers.

When you apply for pre-approval, the lender pulls up your credit and review documents for cross-checking income, assets, and debts. You can even apply for pre-approval from more than one lender to shop for rates. Don’t worry – your credit score won’t be affected, as long as you apply within a limited time frame, like 30 days.

Home purchasing tips to remember

Don’t overshoot your budget

The lender could offer to loan more than you can afford, or you might feel pressurized to raise the bar in order to beat another buyer’s offer. To avoid financial stress later on, set a price range based on your budget, and then stick to it. Ideally, you should look at properties below your price limit, so there is wiggle room for bidding.

Get a home inspection done

Home inspection is a detailed assessment of the structure and mechanical systems of the property. A trained professional should be hired, so they can detect potential issues, which helps you make an informed decision. After all, you don’t want to perform exorbitant repairs right after moving in that severely strain your finances. If the home inspection reveals serious problems that were previously undisclosed by the seller, you are usually able to rescind the offer and get the deposit back. You could also negotiate so the seller pays for the repairs or gives a discount on selling price.

Make an offer

Review your budget once again before making an offer. Talk to your real estate agent and figure out an offer. The seller can accept it or issue a counteroffer. You can then accept, or continue to go back and forth until you either reach a deal or decide to call it quits. If you reach an agreement, a “good-faith” deposit is made, while the process transitions into escrow. 

If you are able to work out a favorable deal with the seller, get ready to close. Final stages of the purchase include getting the home appraised, doing a title search to ensure no one else apart from the seller can stake a claim on the property, getting private mortgage insurance if the down payment is less than 20% and finishing up paperwork. There are other closing costs too, which include loan origination fees, title insurance, surveys, taxes, and credit report charges.

Get sufficient home insurance

Lenders will require that you purchase homeowner’s insurance before closing the deal. It covers the expenses for repairs, refurbishments, or replacements if the property is damaged by an incident mentioned in the policy. It also provides liability insurance if you are held responsible for an injury or accident. 
A real estate agent helps to locate homes that meet your requirements and are in your price range. Don’t rush the process; take your time and consider options – you don’t want to regret your choice later on. 


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