Buying a home is tedious and can be complicated, whether you’ve purchased six homes or one home in the past. For the first time home buyer, it may seem like an impossible task.
Fortunately, things are not what they always seem to be! Yes, buying a home is difficult, but there are plenty of tips that you may follow to make the process easy! Also, many states offer loans and grants to those who are limited in their income. As long as you keep that and these 15 tips in mind for the future, you should have no problem with the purchase of your first home!
1. Establish good credit.
Unless you are incredibly wealthy (lucky you!), you will have to establish good credit in order to buy your very first home. Banks and mortgage lenders will not lend money to first time home buyers unless they have a history of borrowing money and paying it back on time. That is why this is the first step to achieving your home buying goal.
The easiest and quickest way to do this is to visit a bank and deposit a small amount ($500 will do). Apply for a $500 loan, using the deposited money as a security for your loan.
If your loan term is more than 6 months, make payments for the first 3 months, then pay the entire loan off. Repeat this process, but use larger amounts. Eventually, you will build a good track record so that you won’t have to make any security deposits for loans. Instead, your track record will be so good, you’ll just be able to borrow money with your signature.
Make sure that you aren’t letting credit cards get in the way of your credit establishment. Be sure to pay off the entire balance every month.
2. Raise your credit score.
Besides establishing good credit, it’s important to make sure that your credit score is high. This will increase your chances of getting your loan approved and you may qualify for the lowest rates. Below are some tips that will help you raise your credit score:
A.) Pay your bills on time
B.) Keep your credit card balances at zero, or super low
C.) Pay more than the minimum for your monthly payments
D.) Remove negative items from your credit report (you may negotiate this)
E.) Borrow great credit from a family member or close friend
It takes at least 2 months for your credit score to start improving once you implement these tips.
3.) Save for a down payment and closing costs.
When you buy your first home, you will need money for the down payment, as well as the closing cost. Start saving as soon as you can. Create a savings plan. It’s difficult, but you will have to discipline yourself to stick to this plan. It helps to create a savings account where you set aside a consistent amount on a weekly basis. It doesn’t have to be too big. Just get in the habit of saving some money.
4.) Record your spendings.
Whether you are a first time home buyer or not, you should develop a budget. A suggestion is to keep track of your spendings for one month. At the end of the month, you will be able to determine where your money is going exactly. This makes it easier for you to see areas where you can spend less or make improvements in your spendings.
5.) Create a financial plan/goal.
It is highly recommended for first time home buyers to set a goal of saving at least 20% of the purchase price to use as a down payment. 20% is the magical number here because a lot of programs will ask you to put less than 20%. It does make for a good buffer though.
6.) Establish a relationship with an agent.
Agents can provide a wealth of knowledge and information when it comes to the buying and selling process. For example, an agent can link you to many different houses that are in your area of interest. However, agents differ from one to the next and have their specialties. It is important to “shop” for an agent until you find one that you feel satisfied and comfortable with. Make sure to let your agent know that you are a first time home buyer as agents have their preferences and specialties on who or what to work with.
7. Study market values.
When it comes to shopping for anything, everyone loves finding a great deal. At the same time, we never want to pay more for something than its worth. The same principles should be used in buying a house. Thus, it is important to study the market values in the area of interest. Over time, you will be able to develop a good sense of which properties in that area are overpriced or under priced.
You want to go for a home that is overpriced. More than likely, you will end up selling your first home some time. Statistics show that the average American sells his/her home and moves into a new one at a rate of 7 years. That means that if you can purchase a home for less than it is worth, you can make a good profit when you’re ready to sell the house.
8. Get pre-approved for a mortgage.
You know how Superman is always ready when the villains come? It doesn’t matter what time of the day it is, he always his super hero outfit underneath anything that he’s wearing (professional attire and anything). It’s because he’s always ready for the worst and best cases scenarios.
When buying a house, you want to be prepared like Superman, and you can do this by getting pre-approved for a mortgage. Not all lenders are equally efficient and helpful in working with buyers. But, if you are pre-approved, you will be ready for anything, like buying a house. With a pre-approval, your offer will carry more value with the seller because many sellers are looking to sell quickly. Therefore, you will be in a stronger position to close on the purchase.
9.) Decide your needs and wants within your budget.
Most first time home buyers have the candy shop boy syndrome. That is, they are overly eager about the kinds of houses they want to buy. Of course everyone wants to buy a beautiful house with 5 bedrooms, 5 baths, and a beautiful view, similar to the boy who wants to buy the big, swirly lollipop, 2 pounds of the rainbow looking Haribo gummy bears, and maybe a pound of jelly beans to go with all of that.
But, just as we know that we can’t afford to consume all those calories, you have to be realistic and careful about your budget. When you buy your first home, there will be many incidental expenditures that will add up and strain your budget. Sure, we’d like those mansions in Laguna Beach, but not everyone can afford such luxuries (just yet).
If you focus on steps 4, 5, and 8, you will be able to understand your budget. Thus, preventing yourself from making the mistake that many first time home buyers make. Don’t stretch your budget beyond what you can afford.
10. Shop for the right home.
This is the most exciting step for home buyers. By this time, you should already understand your budget well, and you should have a good relationship with a real estate agent. Gather information to give to your agent so that he/she can assist you better.
Below are some details/information to provide to your agent. Try to follow the order too, because they are slightly sorted by importance.
1. How much you are qualified to spend
2. Amenities that you desire (# of bedrooms, a fireplace, a deck, etc.)
3. Desired area/distance from work
4. What’s negotiable (your first home won’t have everything you want, so let your agent know about some of the things you’re willing to do without for your first home)
5. Other information
The more information you give to the agent, the more time you save for yourself and your agent. It is also important for you to visit many homes so that you will increase your wealth of knowledge when it comes to property values in the area you desire. However, keep in mind that your agent is paid on commission so he or she probably not want to show you 392 houses in the next three years. At the same time, we know that you would not want your agent to show you only one home and then pushing you to make the purchase. It’s important to try to find the balance where everyone is happy. So, the more information you give, the more you and your agent can get done. Everyone wins!
11. Choose the right neighborhood.
You want to be a futuristic thinker when it comes to buying a house. There will come a time when you will want or need to sell your home due to reasons pertaining to your career (job relocations) or simply the desire to upgrade. For this futuristic reason, you want to think about choosing the right neighborhood so that when you do decide to sell your home, you will be rewarded with a higher value home that is easier to sell.
Below are some things that a home buyer should look for when searching for a great neighborhood:
•Located in a good school district – Bonus points for finding a home that is near a particularly well-recognized school. If this school appeals to you, it will also appeal to the next home buyer who will want to purchase this home from you in the future
•Is the area improving or in decline? – If the area is headed for a state of decline, the next buyer may not find this house desirable, even if the area is acceptable presently
•Is the area close to many popular attractions? – Being conveniently located next or close to parks, beaches, lakes, mountains, and other popular locations is attractive for first time home buyers and experienced homeowners.
•Choose your neighbors carefully – Is there an obnoxious neighbor next to the home you plan to purchase? Hopefully not. Nobody wants to live next to someone that will keep them up all night by loud, uncontrolled behavior from their neighbor. Do your research (safely and legally). Knock on your neighbors’ doors and say hello. Find out what they are like. It’ll be extremely helpful for you in the short and long run.
12. Learn about the elements and terms of a sales contract.
As a first time home buyer, you probably have never dealt with a real estate purchase and sale agreement. Below are some terms to know to help you understand the elements of a real estate contract:
•Acceptance – how much time a seller has to either accept the offer or to provide a counter-offer
•Closing – a future date by which time the closing will take place
•Description – a legal description of the property as well as the street address
•Deposit – how much initial money is included with the contract and who will hold it
•Financial Contingency – a clause that states the entire contract is subject to the purchaser being able to obtain mortgage loan of $ amount by a certain date. First time home buyers should make sure their agent includes this clause in the contract.
•Home Inspection – the contract can be contingent upon a satisfactory home inspection to be done by a qualified profession within X amount of days
•Inclusions and Exclusions – some items in a home are not considered part of the real estate, but instead are personal property. Refrigerators and washing machines fit this category. This clause should state exactly what is included in the sale and what is not
•Insurance – who will insure the property until closing
•Price – the amount of money the buyer will be paying to the seller
•Possession Date – the date on which the buyer will receive possession of the property
If you have any questions about the details of the contract, do not hesitate to ask your agent. He/she may answer any questions in this area.
13. Submit your offer.
If you complete the first 12 steps, you may confidently submit an offer. This is not a mere science. Making your offer is an at, which is why there are many books out there dedicated to explaining techniques on negotiating real estate successfully. Below are some basic negotiation tips:
•Know the seller – we know you want to purchase the house for as little as possible and the seller wants to sell the house for as much as possible. Somewhere in between is the settlement range. You’ll be able to negotiate better if you find out what the seller wants. A quick closing, or a delayed one? Does the home need some work (new carpet, new windows)? Does the seller want to get this work done, or would he/she rather not deal with the hassle? Knowing these details will allow you to negotiate a win/win situation.
•Determine what would be the best and worst case scenarios – also determine how much risk is involved in purchasing this house. How badly do you want this house? Are you willing to lose the deal so that you may get your best case scenario? Think this through so that you won’t make a decision you’ll regret.
•Be professional at all times – it is important to remain emotionally neutral throughout the negotiation process, as emotions can affect your decisions. This may be a challenge as a first time home buyer because buying your first house is a very emotional situation. But, try your best to keep your emotions on the side so that you make a decision that you will always be happy with. After that, you’ll have all the time in the world to celebrate and be on an emotional high.
14. Arrange for a home inspection.
Qualified home inspectors will examine the whole house in detail (roofing, heating and air conditioning systems, structural integrity, siding, windows, plumbing and electrical systems. If anything seems a little off or deficient, you will be notified in a detailed written report. Make sure your offer is based upon a satisfactory report.
15. Arrange for homeowners insurance.
All real estate owners should have homeowners insurance. You will soon be included in this group.
Congratulations! You now know everything there is to know to be a successful, first time home buyer. Once you have gone through steps 1 through 15, you should probably start calling up all your friends to have a big moving party! Or, you can hire professional movers from a moving company.. I would personally go with the moving party because you’ll save thousands of dollars and have a blast doing it!
Enjoy the years to come in your new home.