First-Time Home Buyers’ Guide
Learn how to save for a down payment, apply for a mortgage, and shop for a home, among other things.
A successful homebuying process, like any large job, is all about getting the details perfect from start to finish. These first-time house purchase ideas will assist you in navigating the process, saving money, and completing the transaction. We separated them into four groups:
Tips on how to get ready to buy.
Advice on choosing a mortgage.
Shopping advice for the home.
Advice about buying a house.
Tips for preparing to buy
1. Begin saving as soon as possible.
The following are the most important costs to consider when saving for a house:
The amount of money you’ll need for a down payment will vary depending on the type of mortgage you choose and the lender. Some conventional loans for first-time home purchasers with good credit allow for as little as a 3% down payment. However, even a little down payment might be difficult to come up with. A 3% down payment on a $300,000 home, for example, is $9,000. To get started, use a down payment calculator to choose a target and then set up automatic transfers from your checking account to your savings account.
Closing costs are the fees and charges that you pay to complete your mortgage, and they normally range from 2% to 5% of the loan amount. You can negotiate a percentage of your closing costs with the seller, and you can save money on some charges like home inspections by shopping around.
After you’ve bought a house, you’ll need money to move in. Make a budget for immediate house repairs, upgrades, and furniture.
2. Determine the size of home you can afford.
Before you start looking for a house, figure out how much you can afford. The house affordability calculator from Nerd Wallet can assist you in determining a price range depending on your income, debt, down payment, credit score, and desired location.
3. Examine and improve your credit score
Your credit score will impact whether you are eligible for a mortgage and the interest rate offered by lenders. Take the following methods to improve your credit score in order to buy a home:
Obtain free copies of your credit reports from each of the three credit agencies — Experian, Equifax, and TransUnion — and challenge any errors that may have a negative impact on your credit score.
Keep your credit card balances as low as possible by paying all of your bills on schedule.
Keep your credit cards active. Closing a card increases the amount of credit you have accessible, which can lower your score.
Keep an eye on your credit score. Nerd Wallet provides a free weekly credit score that is updated.
4.Advice on Choosing a Mortgage
You also have choices when it comes to the length of your mortgage. The majority of house buyers choose a 30-year fixed-rate mortgage, which is paid off in 30 years and has a fixed interest rate. The interest rate for a 15-year loan is usually lower than on a 30-year loan, but the monthly payments are higher.
5. Look into help programmes for first-time house buyers.
Many states, as well as some towns and counties, provide first-time home buyer programmes that often include low-interest mortgages, as well as down payment and closing cost help. Some first-time home buyer programmes provide tax rebates as well.
6. Examine mortgage interest rates and expenses.
Request loan quotes for the same type of mortgage from various lenders to evaluate costs, including interest rates and possible origination fees, according to the Consumer Financial Protection Bureau.
Lenders may give the option of purchasing discount points, which are fees paid up front by the borrower to lower the interest rate. If you have the cash on hand and expect to stay in your house for a long time, buying points may make sense. To make your decision, use a discount points calculator.
7. Obtain a letter of preapproval.
A mortgage preapproval is an offer from a lender to lend you a particular amount of money on specific terms. A preapproval letter shows house sellers and real estate agents that you’re serious about buying a property, and it can provide you an advantage over other buyers who haven’t gone through the process yet.
When you’re ready to start looking for a home, apply for preapproval. To verify your income, assets, and debt, a lender will retrieve your credit report and review documentation. Applying for preapproval from multiple lenders to compare rates shouldn’t harm your credit score if you do it within a set time restriction, such as 30 days.
8. Carefully select a real estate agent.
A good real estate agent will search the market for homes that fit your requirements and will assist you with the negotiation and closing process. Obtain agent recommendations from other recent property purchasers. Request references from at least a few agents and conduct interviews with them. When chatting with possible agents, inquire about their experience working with first-time home buyers in your area and how they intend to assist you in your search.
9. Choose the right house and neighborhood.
Given your lifestyle and budget, weigh the benefits and drawbacks of various types of residences. A condominium or townhome may be less expensive than a single-family home, but it will have less privacy due to shared walls with neighbors. When looking for condos and townhomes, as well as houses in planned or gated communities, don’t forget to factor in homeowners association costs.
Another alternative is to purchase a fixer-upper, which is a single-family home that need upgrades or repairs. Fixer-uppers typically sell for less per square foot than ready-to-move-in houses. You may, however, need to set aside additional funds for repairs and remodeling. Renovation mortgages combine the purchase price of a home with the cost of improvements into a single loan.
Consider if a starting house or a forever home will best satisfy your long-term needs. If you plan to establish or extend your family, buying a home with more space may make sense.
Make a comprehensive examination of potential neighborhoods. Choose one with features that are crucial to you, and commute to work during rush hour to see how it works.
10. Stick to your spending plan.
You may be pressured to spend more than you can comfortably afford by a lender, or you may feel pressured to spend more than you can comfortably afford to beat another buyer’s offer. Set a pricing range depending on your budget and stick to it to avoid financial trouble in the future.
Look for properties below your price range to offer yourself some breathing room while bidding in a competitive market.
11. Take advantage of open houses.
In the wake of the COVID-19 outbreak, online 3D home tours have grown in popularity. These tours allow customers to virtually walk through a property at any time of day or night and notice nuances that conventional images miss. They don’t provide all of the details that in-person visits provide, such as how the carpets smell, but they can help you narrow down the houses you want to see.
When touring properties in person, use all of your senses. Listen for noise, smell for scents, and inspect the home’s overall condition both inside and out. Inquire about the electrical and plumbing systems, as well as the roof’s kind and age.
Advice on Buying a House
12. Invest in a house inspection.
A house inspection is a detailed examination of the building’s construction and mechanical systems. Professional inspectors check for potential issues so you can make an educated decision about whether or not to buy the property. Here are a few things to remember:
Radon, mould, and bugs aren’t tested during standard inspections. Understand the scope of the inspection and whether or not more inspections are required.
Ascertain that the inspector has access to all areas of the house, including the roof and any crawl spaces.
In most cases, the buyer is present at the inspection. You can have a better knowledge of the home and ask questions on the spot by following the inspector around. If you are unable to attend the inspection, carefully read the inspector’s report and inquire about any points that are unclear.
13. Work out a deal with the vendor.
You might be able to save money by requesting the seller to pay for repairs up front or lowering the price to cover the expense of future repairs. You might also request that the seller pay a portion of the closing costs. However, keep in mind that the seller’s ability to pay a portion of the closing fees may be limited by the lender.
The strength of your negotiation position will be determined by the local market. When there are more bidders than properties for sale, it’s more difficult to strike a hard deal. Work with your real estate agent to gain a better understanding of the local market and develop a strategy.
14. Get enough house insurance.
Before you can close the contract, your lender will require you to purchase homeowners insurance. If your home or belongings are damaged by an incident covered by your policy, your home insurance will cover the cost of repairing or replacing them. It also includes liability coverage in the event that you are found to be at fault for an injury or accident. Purchase adequate home insurance to cover the expense of reconstructing your home in the event that it is destroyed.
