10 Tips for First-Time Homebuyers

What You Should (and Shouldn’t) Do When Buying a House

Leaping into homeownership is always a big decision, whether you’ve been saving up for years or you’re looking to take advantage of a first-time homebuyer program. The process is complicated, and it can become overwhelming if you’re not prepared.

Let’s take a look at some first-time homebuyer tips and common pitfalls you’ll want to avoid so you’ll be well informed before your purchase.

Key Takeaways

  • Start prepping your finances well in advance of applying for a home mortgage.
  • Compare multiple offers from lenders to find the best deal.
  • Take advantage of first-time homebuyer programs for low rates and down payment assistance.
  • A real estate agent can be an invaluable ally who can walk you through the many steps of the homebuying process.

1. Prepare Your Finances

One of the most important tips for buying a home is that you must prepare your finances. Your new home is an investment, but a home loan is also an investment for your bank. It’s looking for low-risk customers for loans, so you’ll have to show financial stability.

There are a few things you can do to prep your finances before acquiring a loan. Pay down debt, make your payments on time, and avoid opening new loans or credit cards. Cabell told The Balance by email that a common mistake is acquiring new debt, even if it’s well in advance of your mortgage loan application.

New accounts don’t show up instantly on your credit report. They’ll usually take at least a few weeks to appear.

You’ll also want to start saving for a down payment at this point, although the amount you’ll need may be determined by the mortgage for which you’re applying.

2. Determine Your Budget Early

Your budget will depend on several factors, including the size of your down payment and what interest programs you’ll be using.

Banks will generally want you to maintain a debt-to-income ratio lower than 36% to ensure that you’ll be able to pay back your loan. Interest calculators can help you determine your monthly payment. Figuring out how much house you can afford based on your income is also important.

Don’t forget to calculate the “invisible” costs of homeownership when you’re determining your budget.

Be wary of going over budget. This creeping trend has increased over the years. About 28% of buyers spent more on their homes in 2021 than their initial budget allowed.

3. Don’t Buy Solely Based on the Market

The housing market is always fluctuating. There will sometimes be more houses for sale than there are interested buyers. This results in a buyer’s market. Properties will be snapped up quickly, and multiple-offer situations may become more common at other times.

Timing the market is the act of trying to predict the best time to buy and waiting until then. This could mean you’ll save some money or face less competition, but attempting to time the market is something you should avoid. There can be more than one downside to waiting for the market to change, including spending more money on rent or risking the continued rise of home prices.

4. Explore Your Loan And Interest Options

There are many types of mortgage loans out there, including specialized loans for first-time homebuyers. These often come with lower interest rates or reduced down payment requirements. Be sure you’ve thoroughly investigated all your options before you dive in with any one type of mortgage.

5. Compare Several Loan Offers

Each bank charges its own set of fees, and this can lead to some fairly significant differences in costs. You’ll also find varying loan limit and loan term at different banks, so getting more than one offer is critical to finding the lender that suits you.

Don’t neglect to get a preapproval letter from your bank once you’re ready to start home shopping. Many sellers require that you have one before they’ll accept an offer on a house.

Note

Your credit report will be checked often as you’re going through the loan application process.

The number one mistake that first-time homebuyers make is failing to prepare before going home shopping. According to many recent surveys, 80% of first-time home buyers wish they could choose again.

6. Make a ‘Must Have’ Home Feature List

It can be easy to start adding things to your list of needs and wants when you begin touring homes. But you’ll want to make sure that the list is true to what you really desire. Is location important to you? How about schools? Does the home need to be turnkey, or are you up for a renovation project?

Remember that there are many things you can change within a home, including the kitchen, backyard, bathrooms, and bedrooms. What you can’t change is the location or the lot size. Keep this in mind when you’re determining your “must-haves.”

7. Hire an Agent

A real estate agent is an expert at their job, which is to find the house that best suits your needs. They’ll be able to tell you if a home is properly priced, whether the neighborhood is good, and how quickly properties are selling. They’ll also be able to negotiate on your behalf and prepare the required paperwork for you.

It’s possible to do this all yourself, but an agent is almost always a better option for a first-time homebuyer.

You need a financial expert to advise you, help you navigate your current financial situation, need a mortgage loan specialist to help you choose the right loan, and a real estate professional to give you the most suitable options. They need the knowledge and patience to advise and answer all of your questions.

8. Don’t Skip the Inspection

A home inspection is meant to uncover problems with the home’s structure, plumbing, roof, and other parts that could be very expensive to repair. You may have a keen eye, but a professional is going to be better equipped to examine the property. You’ll have to pay for it, but the inspector will send you a thorough report detailing the condition of the property when the inspection is completed.

Note

Waiving the inspection is the equivalent of walking in blind. An inspector can inform you before you purchase the home of any costly repairs that will have to be made.

9. Plan Your Offer Carefully

The offer you make will depend greatly on how the market is doing. You’ll have more leeway to negotiate if there’s less competition, but you may have to prepare for other offers if it’s a seller’s market.

Listening to your agent’s recommendations is key when preparing an offer. There are tons of moving parts within real estate, and an agent’s guidance can make the difference between failure and success.

This is especially true in hot markets, which commonly occur when interest rates are low. You’ll have to be flexible and creative to get your offer accepted. Consider writing a personal letter to the seller, stretching your budget for a dream home, or dropping contingencies.

10. Negotiate Thoroughly

Understanding how to negotiate is key, and this is another situation in which a real estate agent can be invaluable. You may have to negotiate if the seller doesn’t accept your initial offer. You may also have to do so if the home inspection turns up issues. It’s often possible to work with the seller to have these repaired before you purchase the property. You can also ask for a credit against the sale price so you can have the problems fixed yourself.

Be ready and willing to negotiate with the seller in order to get the best deal, and don’t be afraid to walk away if you can’t come to an agreement. There’s always another home.

Frequently Asked Questions (FAQs)

When is it too late to back out of buying a house?

You can back out of purchasing a house at any time before the actual closing, but doing so may cause you to forfeit any earnest money you’ve deposited. This will depend on your individual contract and the time period in which you choose to back out.

How do I save money for buying a house?

Your first step to understanding how to save money for a house is figuring out your cash flow. This is where your money goes each month, and it gives you an idea of how you spend money and where you can save.

You’ll then want to start pricing homes to determine how much you’ll have to save for your down payment and your closing costs, then set a monthly savings goal and a timeline. Work on tracking your progress. You may want to explore high-yield savings accounts to grow your money faster. Be diligent in cutting out any unnecessary expenses.

How long does it take to buy a house?

This will depend on your personal situation and the market itself. You may find yourself missing out on properties due to multiple-offer scenarios if you don’t act fast when competition is high. When the market changes, you may instead be able to move along at a more leisurely pace.

The time it will take to purchase a home will also depend on what type of loan you’re using. The bank will disburse the amount you borrowed to pay the seller when the seller completes the registration of the house’s red book..

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