11 Tips for First Time Home Buyers: What to Know Before Buying

tips for first time home buyers

Getting your first home is an achievement that not many people experience, yet it’s extremely important. Whether you have a family or you’re living on your own, you’ll be able to live in a good home for many years to come. 

Alternatively, it can be an investment that grows in value over time. If you buy a home in a great area and keep it, you’ll likely be able to sell it for a higher value.  

Most people know about the many benefits of buying a home, though. The main difficulty is not motivation – instead, it’s lack of knowledge. 

For this reason, the homebuying process can seem daunting for many, and that’s especially the case for first-time homebuyers. 

To make things easier for you, we’ve prepared a list of tips that will help you out and make you feel more confident. Here are the things you need to know before buying a home. 


1. Get Ready to Commit to the Mortgage for Decades

Unless you can pay the house upfront by cash, be ready to have a loan commitment you’ll hold for 15-30 years. It’s one of the most significant debts anyone will undertake in their lifetime.

Before going for the purchase, ask yourself, is this house worth the decades of payments?

Buying a house means living in that area and owning it for years. You’ll also want to ensure that you have enough funds left in the bank after down payments. 

Consistent payments for decades mean you need to have a stable source of income. If you cannot fulfill these, you may want to contemplate the purchase.

There are ways to pay off the loan faster than 15-30 years, but they’ll still require time. For example, building alternate income streams to pay off the loan can accelerate your payments. 

However, you’ll need to let the lender know that the extra contributions hit the principal to avoid confusion.


2. Get Your Savings in Order

Down payment isn’t the only thing you’ll need to worry about during the home purchase. There are a lot of fees involved, so it pays to have extra savings ready when you need them. 

To give you a better idea, let’s break down the costs involved in buying your first home.

  • Down Payment - A chunk of cash will go to a percentage of the home’s value. Down payment can range anywhere from 3-10% of the home’s value, depending on how much you have. The higher you get, the less you’ll have to pay every month.
  • Moving In Costs - You’ll have to rent a van, set up utilities, and other services you need for a functional home. You may also encounter things that you want to upgrade or repair. New furnishings will also be a big part of the costs before you settle down.
  • Closing - One of the most overlooked costs in a home purchase is the closing fees. You’ll pay them when you finalize the mortgage, and they range anywhere from 2 to 5% of the loan’s total. One way to lessen the costs is to ask the seller to contribute a portion of the selling price towards the close.


3. Make Sure the Home Matches Your Income

One of the best ways to ensure that your home is affordable is to calculate how much the mortgage will eat from your income. Online calculators will look at living costs, income, down payment, and more to set an average.

It will give you a better idea of whether the home is worth it or if you should continue pursuing other options.


4. Check Your Credit Score Before Applying for a Mortgage

Your credit score is a representation of your financial health in a lender’s eyes. While it may not tell the entire story, it can make the difference between a loan with acceptable terms or one with high-interest rates. 

If you don’t like your score right now, you may want to delay your purchase to improve your score in a few months before committing to a mortgage.

If you believe that you can improve your credit utilization or fix some errors to move higher up, go for it. Each increase will unlock better opportunities, and some of the best loans are available when you have excellent credit.

Each of the three credit bureaus offers a free credit report you can claim each year. Check each and then see what you can do next.


5. Get a Preapproval

Mortgage pre-approval can help you determine what homes are within your budget. It’s essentially a loan estimate, given your current circumstances. 

The preapproval can help you land house purchasing deals faster. It’ll also act as an anchor to direct your decisions when comparing properties.

Many confuse preapproval for prequalification:

  • A preapproval accounts for your bank statements, credit score, and other financial information. The lender uses that for an estimate of how much they can loan.
  • On the other hand, a prequalification is more of an informal evaluation. You won’t get far with it compared to a preapproval from the lender.

Having pre approval can also mean a faster loan application process. If you choose to pursue that lender, there is a smaller chance of delays or problems. 

Knowing the value of what you can afford can help you set up better deals and offers with the home you fancy.


6. Avoid Making Big Financial Decisions Before the Mortgage Application

If you’re planning on purchasing a home, avoid getting into any additional debt. You may also want to start paying off your other loans to reduce your debt-to-income ratio. 

A high debt to income ratio (DTI) can affect your credit score and is often a negative for lenders. You should not apply for new credit cards or other short-term loans while you haven’t completed the mortgage yet.

You should also avoid making drastic decisions that can change your financial position. For example, quitting your job means that you affect your income significantly, which will make lenders hesitant. 

Closing a bank account or a credit card account will also raise some questions even when made with good intentions.

You should also avoid applying for mortgages continuously unless you’re ready to commit to it. Each formal application will mark a hit on your credit score. 

These negatives can add up and make it hard for you to get a loan.

Budget your income now and set some aside so that you’ll have money to pay each of your financial obligations. A late or missed payment can derail your loan application, even if it’s in the final stages.


7. Set a Budget and Stick to It

Your financial situation should give you an idea of the house prices you should pursue. You should look at your income minus all your debts and obligations.

If you are paying more than 20% of your monthly income to debt, then you’ll have to consider how much additional weight the mortgage will bring. You should try and shop for houses that are only three times your annual income or less.

If you have lower than 20% of monthly income, you can pursue a higher valued house. Consider looking at homes that are four times your income. 

The best option is to be debt-free, where you can look at higher-cost homes and even go after homes that are five times your annual income. The reason for this is that you’ll have more space to accommodate the higher monthly payments.

These are guidelines, and you don’t have to stick to them. They’ll give you an idea of how much you’ll spend each month on the mortgage. 

You don’t have to reach the maximum value if you can find a home you like that costs less.


8. Explore the Various Mortgage Options

When talking about mortgages, people usually only talking about conventional loans. However, those are not the only options available. Some mortgages can offer lower down payments, and some don’t require it.

Other plans may have you paying a fixed rate for 15-30 years. A fixed-rate mortgage is ideal if you don’t want to deal with fluctuating prices that could surprise your budget. 

Here are some of the other loans to consider:

  • VA loans: These are for those who serve and have served the military. You can take loans without having to pay any down payment.
  • USDA Loans: Loans offered for those wanting to buy rural homes. These also require no down payment.
  • FHA Loans: Loans provided by the Federal Housing Administration. They typically have lower down payments, reaching as low as 3.5%. 

You can reach a 3% down payment on conventional plans, though it usually requires having a high credit score to justify this. Even though some of these may not have any down payment, it usually means you’ll pay more monthly.

It provides quick access to a house but weighs heavier on your income.

Even though you only need to pay little or not pay the down payment, consider giving some still. It helps lessen the interest rate and lowers your monthly contributions. 

The higher the down payment, the lighter the monthly costs.


9. Prepare for Other Costs in Homeownership

Aside from your monthly obligations to the mortgage, other costs may take you by surprise. Depending on your location, you now have to add HOA dues and utilities that you’ll need to pay. 

There are also insurance and property taxes that take a bulk of your income, depending on the home's value.

It does not include any repair or maintenance work you need for the home. Make sure you have enough money prepared for an unexpected event.


Having insurance is vital but having access to liquidity is also essential.


Before committing to a home, consider how much each would cost compared to your income. You can look at property records to estimate tax costs. 

You can also inquire from insurance companies about the expenses.


10. Have a List of Non-Negotiables and Negotiables

Having a list of must-haves and wants can help you narrow down your choices to the home you want to buy. 

For example, you may be looking for a nice view or an outdoor space as a non-negotiable. That cuts down most of the properties to a few.


“If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it.” - Steve Jobs


Narrowing down your choices can prevent you from making a decision you’ll later regret and also make the home buying process easy.

You can also write down negotiables as they’re bonuses to properties you find. If you have two homes to choose from, the one with more of your wants will likely take the win. 

Again, it makes the decision-making process easier.


11. Find an Agent You Can Trust

Real estate agents will take on the bulk of the work when buying a home. You want to find one who understands what you need and works within your budget. 

Their connections will allow you access to properties you may not even be aware of. They can also give sound advice when dealing with offers, negotiation, and completing deals.

Get a dedicated buyer’s agent and avoid trying to talk to the agents of any sellers. Seller agents are not interested in you and will prioritize closing the deal and maximizing the profits of the sale.


Your First Home Can Be An Overwhelming Process

As a first-time homebuyer, you’re dealing with many things that you haven’t encountered before. Taking all this information and deciding from numerous standpoints can lead to doubt. 

Apply these tips to help narrow down your options and lighten the load. Preparation is the key to improving your buying experience.

If you ever need help with loans, mortgages, and other home-buying needs, consider working with 121 Financial Credit Union. We prioritize our members and make sure they have deals that benefit them. 

Unlike traditional financial institutions, we put you first in every transaction. Contact us today.

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