It can be so overwhelming to be a first time home buyer. We want to help you out. We have purchased 3 houses and 2 pieces of land in the past 6 years. It has been a crazy journey, but we wouldn't change it for the world. We have learned so much. Buying a home can feel impossible at times, but we can assure you that it is possible! You may be thinking, "Where do I even start?" We got you. Here are 10 tips for first time home buyers.
If you want to read about our home journey, CLICK HERE. It is quite the adventure.
1. PAY OFF AS MUCH DEBT AS POSSIBLE
It is so important as a first time home buyer to pay off debt. Mortgage payments are no joke. It is really expensive to own a home. You have to pay a mortgage payment, insurance, maintenance and anything else that pops up.
If you know you are wanting to purchase a home within the next few years, get a plan together to pay off/pay down any existing debts (car payment, credit cards, school loans, etc.) Going into home ownership without a large amount of debt will give you the ability to pay extra expenses that pop up. It also allows you to spend money on furnishings, landscaping, etc.
Saving money is easy to talk about but can be hard to put into action. You have to put a plan into place. We recommend Dave Ramseys programs or something similar to that. Start by paying off your small debts and work your way up to your larger debts. Here is a great post about this method. This may take a few years, but it is worth it. If you want to be a first time home buyer, you have to put in the work up front.
2. DETERMINE YOUR HOUSING BUDGET
The next step in being a first time home buyer is to determine your budget. This step is VITAL in your success as a first time home buyer. The biggest tip we can give is to live under your means. You DO NOT want to become house poor in this process. By that, we mean, you don't want all of your money going toward your house payment. If you overspend on your house, you will miss out on living your life the way you want to live it!
To create a realistic budget you need to figure out what your income is per month, what your downpayment will be and what your additional home costs will be. It can add up quickly. A good rule of thumb is to take around 25% of your annual income and calculate that for housing costs. It will usually be less than 25%, but it is good to overcompensate.
You can use a mortgage calculator to get an idea of your housing costs. This will give you an idea on what you will spend and what your down payment will be. Don't get discouraged if you feel behind the curve! It is good to get a realistic number so you have a goal to work toward. If you make an average income of $5,000 a month, don't let your mortgage payment go over $1,350 a month.
Always take insurance and taxes into account while you are calculating your monthly payment. Like I said before, always live below your means. Mason and I got approved for an amount MUCH higher than we could realistically afford. All of our income would have gone to our house payment. That is not how you want to live your life. Make the choice to live below your means as a first time home buyer so you can benefit in your everyday life!
3. WORK ON YOUR CREDIT
Qualifying for a mortgage relies heavily on your credit score. It will also determine your interest rate, which is EXTREMELY important as a first time home buyer. Don't feel overwhelmed by this information, just consider it another goal to work toward. Most buyers with a credit score above 730 will get the best rates. Here is a great post about mortgage and interest rates.
Most places require a credit score of 620 or higher to qualify for a traditional mortgage. You can also qualify for a FHA loan if you have a credit score of 500 or higher, but you will have a higher downpayment.
The thing to focus on is paying down/paying off your debt. When you are trying to get a loan, the lender will take every debt into consideration. As a first time home buyer, try to come into home ownership with great credit and no debt. It is obviously easier said than done, but IT IS POSSIBLE! We have been there.
4. SAVE FOR A DOWN PAYMENT AND CLOSING COSTS
Down payments are extremely expensive. We always recommend saving at least 20% for a down payment. The more you put down up front, the less you will be paying long term. If you cannot save up 20% right now, there are a few other options. However, we don't fully recommend these because they can't hurt you long term. Google first time home buyer programs and you will find options for a single digit down payment.
When you are deciding on a mortgage, we recommend a 15 year, fixed rate mortgage. Your payment will be higher, but you will pay your home off sooner. You can always do a 30 year mortgage if you can't afford a higher mortgage payment right now.
Here is an example via Dave Ramsey.
|15-Year at 4%||Vs.||30-Year at 4%|
|180||Number of Payments||360|
|$45,765||Total Interest Paid||$99,236|
|$218,365||Total Amount Paid||$271,836|
When you are closing on your house, there will be closing costs. Closing costs can get expensive, depending on the price of the house you a purchasing. We recommend saving at least $5,000-$8,000 for closing costs. If it is less, you have money to spend on furnishings.
5. GET PRE-APPROVED FOR A LOAN
Before you start your home search, get a leg up by getting a mortgage pre-approval. During this process a lender will go over all of your financials and gives you an estimated price range for your loan. You will receive a pre-approval letter as well. Remember most lenders will approve you for a really high mortgage. DO NOT overspend and become house poor.
Pre-approval will show sellers you are ready to buy as a first time home buyer. It shows them that you are serious about purchasing a home. If you live in an area where the market is hot, pre-approval is 100% necessary.
6. FIND A GREAT REALTOR
We cannot convey how important a good realtor is while you are house hunting. As a first time home buyer, you need to hire someone that has years of experience. We always recommend chatting with at least 3 realtors before you make a decision. We have bought 5 properties and have experience with realtors.
When you looking for a realtor, reach out to family and friends! The best way to find a good fit is to talk to people that have had experience with different realtors. References and referrals are KEY in finding a good realtor.
If you are looking for a house in a very specific area, find a realtor that has a lot of experience in that area. Every realtor is NOT created equal.
A good realtor should:
-Consistently communicate with you
-Be willing to take you to multiple houses/open houses
-Work with your budget and not press you to push your limits
-Know the area you are looking in REALLY well
-Have a great portfolio of houses they have sold in the past
7. RESEARCH THE AREA
Before you start going to open houses, make sure you research! There are so many things you need to know before you put an offer on a house. Find the area you want to buy in and look at homes that have sold in the past few months. Head to zillow.com or realtor.com and click the tab "sold" and it will show you the houses that have recently sold in the area.
As a first time home buyer, it is essential to feel confident and educated while house hunting. The biggest things you need to research are:
-What is the average price point for the area
-The school district
-Distance to gas stations and grocery stores
Talk with your realtor about all of these things prior to seriously looking for a house.
8. FIND THE PERFECT HOME
Now it is time to start HOUSE HUNTING. As a first time home buyer, this can be exciting and extremely overwhelming. Take a deep breath and know that everything is going to turn out okay! Your realtor should be doing the heavy lifting at this point. Your realtor will put you on a drip email list and you will receive listings, usually every day. If you see one that you like, call you realtor and let them know you want to set up a showing.
If the market is hot, you may have to see the house THAT DAY. In Columbus, the market is extremely hot and you have to see a house that day to make an offer. It is stressful, but keep the long term vision in mind.
Your realtor will be sending you most of the listings you need, but keep looking on realtor.com and zillow.com. Something may pop up and you can send it to your realtor to set up a showing.
Keep in mind that you may have to see 15-30 houses before you find the house that is right for you! Don't settle on a house that doesn't feel right. I always say, gut reaction is KEY when you are house hunting.
9. MAKE AN OFFER
Once you find a house you love, it is time to make an offer. As a first time home buyer, this can be really scary! Let your realtor guide you on this. They know what it will take to come in with a strong offer. If you don't like the offer they come up with, then communicate that to them. But ultimately, they have experience in this realm and do this every day.
If the market is hot, you may enter a bidding war. You may have to raise your offer or cap out at a certain price. To win a bidding war you can raise your offer, fore go closing costs and fore go an inspection. These are always good things to do, but can be necessary in certain situations.
Know that you may not get the first house you offer on and THAT IS OKAY. It is disappointing in the moment, but these things happen. Stay encouraged and know that you will find a house! Trust your gut and trust your realtor.
10. CLOSE ON YOUR HOUSE
You are almost a home owner, congrats! Once your offer is accepted, the closing process will begin. This is the last thing you need to check off your list before you can officially move in. Closing usually takes just over a month so you have time to pack, move, etc. Your realtor will handle the closing process, you just need to show up.
When you are at the final closing meeting, you will be signing a lot of paperwork. If you have any questions, ask them while you are signing.
We hope these tips help!
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Remember, progress > perfection.
Mason and Liz