At True Homes, we know how stressful the home buying process can be, especially for first-time home buyers. Making the decision to buy a home is hard enough on its own, then throw in the unknowns that come with home financing, choosing a home, making an offer – it’s intimidating! Here are some homebuying tips to help first-time home buyers through the initial stages and into owning their new homes.
Prepare Your Finances
Since new homes cost far more than the average person can pay in cash, home financing is the first consideration. A short discussion with a mortgage lender can save hours of online research. Based on a small amount of information, they can guide home buyers to the appropriate loan programs to consider.
While different states and lenders have special offers for first-time home buyers, typical loan programs include:
- Conventional loans, which require as little as 3% down;
- VA Loans for most military and former military personnel, which require 0% down;
- USDA for rural properties, which require 0% down based on income eligibility; and
- FHA loans, which require a slightly higher 3.5% down payment but are more flexible when it comes to credit scores and other requirements.
Except for special programs, low down payment loans require the purchase of mortgage insurance, which will add an extra cost to the monthly payment. Home value increases and payments toward principal will typically offset the extra cost; homeowners can gain more value in their home than they pay in mortgage insurance.
A mortgage lender will also discuss additional funds needed, including closing costs. These typically require an additional 1% to 3% of the home’s value to be presented at or before closing, for things like the appraisal, pest inspections, and professional fees.
When collecting down payments and cash to close, it helps to gather assets into one bank account at least 60 to 90 days before starting the actual purchase process. This allows the funds to “season,” and underwriters are less likely to ask questions about where the funds originated. If some of the money came as a gift or from the sale of a car or boat, for example, proof will not likely be required, saving time and trouble.
Finally, just before starting the home search, it’s important to get a pre-approval. This is when a mortgage lender looks at income and debts, including pulling a credit report and reviewing documents such as W-2s and tax returns. The lender provides a letter guaranteeing financing for a certain level. The pre-approval letter guides the home search so buyers know exactly what they can afford. It also assures potential sellers the buyer can close the deal.
Shopping for a Home
Here comes the fun part! Touring homes gives first-time borrowers the opportunity to get a close look at their dreams – and also to discover the things they really don’t like in new homes.
It helps to create a list of must-haves and nice-to-haves. A walk-in pantry is nice, but is it necessary? A home office? A guest bedroom?
Many first-time home buyers have idealistic views of life in new homes and regret decisions they made later. They envision hosting parties, preparing gourmet meals in a modern kitchen, or enjoying expansive backyards filled with blooms.
Actually, home buyers who don’t throw a lot of parties or prepare a lot of meals as renters often find they don’t as owners, either. Similarly, yard maintenance and gardening can take a lot of time and money many former renters find themselves unprepared to spend.
It’s important to take a close look at the neighborhood too. Some ways to check out the area are visiting at different times of day, walking around to talk to neighbors who are outside, and even practicing the commute during rush hour. Look around for places to shop for necessities, dine out, worship or take Fido for walks.
Finally, remember that during the home search, it’s important to maintain your credit. Opening new credit accounts, failing to pay bills on time, or even charging a significant amount to current accounts can have a negative impact on credit score and the ability to secure financing.
Living In a New Home
Among the homebuying tips we offer, True Homes likes to encourage first-time home buyers to remember to budget money for the care of their new homes. Experts say homeowners should plan to spend about 1% of their home’s value on upkeep, maintenance and repairs each year. In the years where all funds aren’t all required, stashing them into an emergency fund will ensure they’re available if a need arises.