First time homebuying.
It can be a lot to handle – especially all at once.
We asked a recent first time buyer to describe her experience in four simple words, and she quickly fired back:
“Intimidating, overwhelming, exciting, fun.”
Now, you may already be able to relate to the first half of that, but let’s take a moment to focus on those last two words.
Because although it may be hard to believe, the first time homebuying process does not have to emotionally transport you back to your college Calculus final.
If you follow the right steps, and take things in stride, it can feel much better than that – let’s say, like making a vase in your high school pottery class.
Which is to say: a little demanding, a bit messy, but mainly rewarding. Because at the end of it all, you’re the proud owner of something beautiful.
And True Homes is here to show you the way.
Here is what to expect – and what to prepare for – when buying your first home.
At the top of the list…
Give Yourself Time
Despite all the stressors, buying your first home is still an exciting process. But the excitement – coupled with the same-day delivery world we live in – makes it difficult to start early, stay patient and manage your expectations.
Perhaps the biggest (and most obvious) reason to start early with your homebuying process is to allow yourself adequate time to save for a down payment.
Many first time homebuyers understand the importance of saving for down payments, but there are a few less glaring reasons to buy yourself time that are often overlooked: 1) More time to fix or improve your credit; 2) Extra savings for the true cost of homebuying (closing costs, insurance, sizable repairs – more on this below); 3) Less pressure to find the right home (and neighborhood) in a hurry; 4) More time to choose a mortgage lender.
Speaking of which…
Shop Around for Lenders
Not all mortgages are created equal.
Just as you would with any significant purchase, it’s a great idea to shop around with various lenders to find the best deal available to you.
In fact, the data shows that comparing lender rates, fees and loan terms from at least 3 mortgage lenders can save you over $3500 in the first five years of the loan.
Not to mention, taking the time to gather at least three quotes will do more than save you money. It will also improve your chances of finding a lender that clearly values customer service and responsiveness.
And throughout the lending process, a little extra customer service can save a lot of head and heartache.
So, consider making more than one stop on your loan search. You’ll be glad you did.
Know What You Can Afford
Keep in mind: the loan amount you qualify for might not be the amount you’d be comfortable spending.
We recommend focusing less on the total loan amount, and more on how that loan breaks down month over month. In other words, the monthly payment.
Try to make a decision early on: what monthly payment will be most realistic for you, both now and further down the road?
Of course, here is where you should also start thinking about possibly the most overlooked aspect of new homebuying:
Find the “True Cost”
You’ve found the sweet spot for monthly payments, and you’re ready to get out there and compare rates (from at least three lenders, remember?)
Don’t lose the enthusiasm! But, we should first talk about one other variable in regards to financials:
The true cost of homeownership and homebuying.
It may seem all-too-obvious, but many first time homebuyers become narrowly focused on the mortgage itself, and fail to truly bake in the additional costs that come along for the homebuying ride.
Here are a few of those costs that you should keep top-of-mind: 1) Down payment (perhaps the most obvious example); 2) Property taxes in your neighborhood; 3) Homeowners insurance; 4) Closing costs (typically between 2-5% of the loan amount; 5) Costs to improve, maintain or repair; 6) Any furnishing or appliance costs; 7) Cost of inspection.
The point is: an accurate budget is the best tool to avoid a massive derailing – or worse.
And finding and incorporating every true cost is how you build an accurate budget.
Stick to a (Preapproved) Budget
At this point, you’ve done the work needed to map out a crystal clear budget that will have you 100% covered.
And, you’ve compared lenders to find the best fit.
Which means you’re ready to get a letter of preapproval from your lender. Here, the lender will take an in-depth look at your finances, and give you written confirmation that they are prepared to offer you the determined amount.
Having preapproval shows you mean business, and this can be an advantage over other buyers who may have skipped this step.
Now, with your preapproval letter in hand, the goal is to start a more serious home search – and most importantly – to stick to the budget.
First time homebuyers frequently make one (or both) of these budgeting mistakes:
Overbidding. If you’re in a competitive seller’s market, you may start to feel the only way to secure a home you love is to bid over your budget. After all, most sellers are skilled at building a sense of urgency in their prospects. Patience, and not becoming too attached are the best antidote in this case. You’ve set a budget, and the smart move is to stick with it, even when patience runs thin.
Spending their entire savings. There is a tradeoff here: if you put at least 20% down, you are not required to pay mortgage insurance. Sounds great, but if getting to 20% down (plus the additional costs we discussed) will drain your savings, it might be worth a second thought. There’s an inherent risk in leaving yourself little to no runway upon move in.
Find a Great Home (In a Great Neighborhood)
If you’ve been keeping up with our suggestions, you’ve allowed yourself enough time to avoid the stress of rushing to find a new home.
But no matter the time constraints, understand that homes rarely feel perfect at the onset. Sure, you can come very close, but moving the needle from good home to great has a lot to do with what you make of it.
So as much as you’re able, remain open minded and don’t immediately rule out those good homes.
Buy Your Home
Here is where your real estate agent can help with the heavy lifting. At a glance, the process will conclude with: 1) Make an offer; 2) Having the home inspected; 3) Closing or continuing the search.
For more details on the buying process and some post-move-in tips, see Investopedia’s “Buying Process” in the conclusion of this article.
From there, it’s on to the truly fun part.
We hope you’ve gleaned some insight here, and we wish you all the best in your first home purchase. If you know another first time homebuyer in need of advice, please don’t hesitate to share this article.
But more importantly: crack open the champagne, roll out the rugs, and try to get that artwork perfectly centered.