First-Time Home Buyer's Guide: Making Your First House Purchase

Written by Posted On Monday, 19 October 2020 09:55
What to Know About Buying a Home For The First Time What to Know About Buying a Home For The First Time

Buying a Home For The First Time

Are you thinking about entering the world of homeownership for the first time? If you are planning to become a first time home buyer, the initial step onto the housing ladder can be terrifying. With the potential to make an expensive mistake and with a lot to think about, you need to be prepared when first time home buying.

Let's take a look at some of the essential tips to guide you through the home buying process. By being prepared, you increase your odds of not making one or more of the common first-time homebuyer mistakes.

The Benefits of Being First Time Home Buyers

As a first time buyer, you can take advantage of many government programs. There are loans offered to you that are federally backed and give you many advantages over traditional home loans.

You could avoid paying 20% as a down payment through the government-backed mortgages. You can sometimes even qualify for these programs if you aren't actually a first-time buyer.

For example, if you haven't owned a home for 3 years or more, you can be classified as a first-time buyer by the Department of Housing and Urban Development.

If you previously owned with a spouse or partner, you can be accepted as a first-time buyer in a government program. Again, if you have owned a home but your spouse hasn't, purchasing together makes you qualified too.

Before You Buy Checklist

When making a house purchase, you have to consider your long-term goals for your financial future. You might just want to stop paying rent or see it is a good long-term investment.

Being Financially Prepared

Before you even begin your search for a home, you need to know what your financial situation is. You will have to layout a lot of money to purchase a house, not to mention the continuing costs of owning a home.

How much money do you have saved up? You will likely have to pay some money towards a down payment, even if you qualify for a government program. There are also closing costs to consider, among other expenses.

If you were going to wait before you buy, to save up enough money to pay the down payment, you need to think about where you are going to put the money. If you intend to save for a few years to get the money together, a certificate of deposit, bond, or fixed-income portfolio should add something extra to your savings.

If you only need less than a year to save enough money, a high yield savings account allows you to get access to your money when you need it.

You also need to look at your income and what you currently do with it. Are you spending money on things you don't really need? Can you make cutbacks that will grow your savings faster?

How is your credit looking? If you have a better credit score and debt to income ratio, you will qualify for a loan easier with a lower interest rate. Additionally, if you have a cash business, you'll need to make sure you can verify where the money is coming from when getting a mortgage. Cash deposits always need to be explained when getting a loan.

What Mortgage Can you Afford?

Before beginning your search, you need to be pre-approved for a mortgage. Sellers aren’t going to take you seriously if you don't have a pre-approval letter from a lender.

You might not be able to get the loan you think you can either, so going through the pre-approval process will make sure you're not looking at homes above your budget. Compare what lenders are offering before you decide to go with a particular mortgage. There can be big differences between what lenders are offering, that will cost you a lot in the long run. Many real estate agents recommend working with a reputable local mortgage broker who can seek out the best mortgage programs for your particular financing needs.

Even if you get the loan amount you expect or more, it may not be a good idea to use all of that amount to actually buy a home. If you take the maximum value loan available, you might find that you don't have much money left over after mortgage payments each month.

Deciding What Type of Home is Right for You

Do you want to live in a condo, a townhouse, a single-family home, or another type of housing? And where do you want to live? The choices you make depend on what you really need in a home, rather than the things that would be nice to have.

Buying a fixer-upper is also another option, but it can end up costing you more if things don't go to plan. It may seem like a great way to build wealth, but it brings a lot of risk with it.

Choosing Your Real Estate Agent

Your Realtor will help you through the process of buying your first home, giving you advice when you need it, and helping with negotiations. A good agent should have the experience to make sure you don't fall into any potential traps in the buying process.

The Home Buying Process

Once you've decided you're ready to begin, the first time home buying process can be both confusing and exciting.

The Search

If you know what you're looking for, your Realtor will be able to give you a lot of help in your search. They will check through the MLS for suitable properties, and you can search online listings too. You can also drive around neighborhoods that are right for you, and if you find an open house, you are better to go with your agent.

If you want a home that increases in value, look for a property where you can do things that add value.

The Offer

When you find your dream home, it's time to make an offer to the seller. Your real estate agent should be able to guide you in the amount that will secure the purchase. The seller might accept your offer, or negotiations will happen until both parties are happy.

When your offer is accepted, you will have to make an earnest money deposit. This provides some guarantees to the seller and allows them to take them home off the market. Earnest money deposits generally range anywhere from one to five percent of the purchase price. Local customs generally dictate them.

The Inspection

The offer you made to the seller should have contained some clauses; one of the most important of these is the home inspection contingency. If your home inspector finds serious issues with the home, the contingency allows you to walk away from the deal if you can't come to some satisfactory arrangement with the seller. The price might be renegotiated, or the seller could offer to repair the problems.

Understanding how a home inspection works is a vital consideration when buying a home for the first time. Even though you may be tempted to do so if you find yourself in a bidding war, it is not advisable to waive the home inspection contingency. In many areas of the country, buyers are doing just that in order to win the bidding process.

The Appraisal

One of the more significant hurdles to clear when buying a first home is the house appraisal. The lender is going to hire an independent appraiser whose job will be to provide them with an accurate evaluation of the current market value. The lender is not only protecting their interest but yours as well.

As a first-time homebuyer, you won't want to be behind the eight ball, so to speak, when it comes to your equity in the property.

The Close

If things have gone to plan, you'll be ready for closing. This is when all the paperwork is signed and money paid.

However, there can still be some things that hold up or stop the sale at this late stage. Problems with the title search, or the home appraisal not matching your offer's value, can stop things from proceeding.

The Moving Process

One of the worst things to go through as a first-time buyer is a move from one place to the next. You will quickly realize that moving is a lot of hard work. It is a stressful process whether you are renting a house or have been living with parents. Moving is the top reason that causes many folks to stay in their existing home longer than expected.

The New Homeowner

If you get past those final hurdles, you own the home and will be ready to move in. Though you might think you have paid for the property, the expenses of being a homeowner, unfortunately, don't end there. Besides the monthly mortgage payment, you'll now be responsible for paying taxes, insurance, and utility bills, among a host of other expenses associated with homeownership.

Final Thoughts For First-Time Home Buyers

Owning your first home should be considered an honor. Lots of folks would love to become a homeowner but haven't put themselves in this position yet. Remember, there is an awesome fiscal responsibility for owning a house. Set a budget and stick to it.

Hopefully, you have found this guide for first-time buyers to be useful.

About the author: The above article about buying a house for the first time was written by Bill Gassett. Bill is a nationally recognized Real Estate leader who has been helping people buy and sell property in the Metrowest Massachusetts area for the past thirty-four plus years. Bill has been one of the top RE/MAX Realtors in New England for the past decade-plus. His blog, Maximum Real Estate Exposure, is the most visited real estate agent website in the US.

His real estate advice has been featured on CNBC, RIS Media, National Association of Realtors, Today.com, Inman News, Placester, Credit Sesame, and others.

Bill covers real estate sales in the following Massachusetts communities: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Natick, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton and Uxbridge MA.

Reach out for Bill's advice anytime you need it.

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Bill Gassett

One of the top RE/MAX agents in New England over the last decade plus. Providing exceptional real estate services to buyers and sellers in the Metrowest Massachusetts area including the following communities: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton and Uxbridge MA.

See my real estate website at Maximum Real Estate Exposure - one of the most visited real estate sites in Massachusetts.

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