14 Tips First-Time Home Buyers Must Follow

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When buying a home for your first time you’re bound to be very excited. Why wouldn’t you be? Buying your first home is a big deal and it’s perfectly reasonable for you to have butterflies in your stomach. Those butterflies aren’t just caused by the exhilaration of buying your first home, they’re also caused by the fear of doing something wrong or making a mistake. When you’re searching for first-time home buyers programs you’re going to lack the confidence that experienced buyers have and you’re going to want to do everything you can to avoid buyer’s remorse.

There are so many things that you need to be aware of when you’re buying a home. Not knowing what questions to ask your real estate agent, the seller of the home and your home inspectors means that it’s possible to miss something. In the following article, we’ll go over some tips that have been compiled together by professionals in the home buying industry and make sure that you go into your first home buying experience confident so that you can be 100% happy with your decision when you choose the house you want to place an offer on.

Don’t look at homes prior to talking to a mortgage lender

When you’re first-time home buying it can be tempting to power up your computer for a home search or pop into open houses in your area. It’s important to rein in your enthusiasm and visit a lender before you fall in love with a home that you can never afford. In the current housing market, the number of buyers outweighs the number of homes available to purchase. This means that bidding wars are quite possible and if you don’t have your financing lined up you could lose your dream home to someone who talked to a mortgage lender and received mortgage pre-approval.

In order to avoid this make sure you have your finances ready to go so that when your dream house appears you can confidently approach the buyers with an offer. Sellers often only consider offers from buyers who have the backing of a mortgage pre-approval. Going into the buying process with your eyes open to the amount of mortgage funding lenders are willing to give you takes the guesswork out of how much of a home you can afford. You might surprise yourself and find out that you’re able to afford a far nicer home than you originally thought after you talk to a lender!

Talk to multiple lenders

It’s possible that the first mortgage lender you have a meeting with gives you the pre-approval letter you need to buy your home. So why should you shop around? Even though you might get instant approval from one lender, this doesn’t mean that they’re offering you the best interest rate on your mortgage loan or even the highest mortgage that you can get. Make sure to have meetings with at least three mortgage lenders and compare their interest rates and the amount of a mortgage that they’re willing to offer you. Don’t just look at the numbers though.

There is a lot of stress involved in purchasing a home and working with a lender that treats you fairly and communicates well can be just as important as the interest rate they offer. The home buying process is long and you want to ensure that you have the best team assembled around you to make the process go as smoothly as possible.

More: Best Online Mortgage Lenders: Everything You Need to Know

Only buy homes that you can honestly afford

Just because you are approved for a higher mortgage than you originally thought, it doesn’t mean that you should buy a house at the far end of your affordability spectrum. You know best what added payment you can afford and you need to keep in mind that the higher your mortgage is, the higher your monthly payment will be as well.

After you’re pre-approved for a set amount, sit down and figure out what your monthly expenses already are and think about what you can afford to add to them monthly. It also helps to consider how hard it would be for you to continue making those payments if you were away from work for a period of time due to illness or injury. You don’t want to buy your dream house only to lose it down the road because you can’t afford the mortgage payment.

More: First-Time Homebuyer Grants: Here’s What to Know

Take the time to plan for your purchase

When you decide you’re ready to buy a home, especially if it’s your first home, it can be tempting to dive right in. However, you should wait and plan out this purchase at least 12 months in advance. One of the main reasons for this is that you might have areas of your credit report that need fixing and this can take time. It’s worth the wait because a better credit score means a better interest rate which can save you thousands of dollars over the course of your loan.

In addition, the longer you wait the more you’re able to save up for closing costs, home inspector fees, and your down payment. The more you can save for your down payment the less you’ll have to borrow from a lender which can also save you on the amount your home will cost you. Taking the time to prepare is worth it in the long run.

More: 30-Year Fixed Mortgage Rates: The Truths You Have to Know

Spending every cent you’ve saved up

When you can gather together 20% of your home price to put towards a down payment it can pay off in the long run because you often don’t need to purchase mortgage insurance. However, if you can’t afford to put 20% down then it’s better off paying a little more every month for private mortgage insurance and putting down a smaller down payment.

Financial experts agree that you should have 3-6 months worth of expenses saved up for and tucked away in an emergency savings account. You should never drain this account in order to make a larger down payment. Buying a home is more reason then ever to ensure that you have some money tucked away to cover expenses if something were to happen. A home is just one more expense and you need to make sure you have it covered in case of an emergency.

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Making changes to your credit report

When applying for a mortgage your lender is going to comb through your credit report. It can be tempting to make large purchases such as a new living room set to go in your new house, but don’t do it! Any large purchases can negatively affect your credit. You should try to keep things as stable as possible. Make sure your bills are paid on time every month and ensure that your credit cards don’t carry a high balance in order to keep your credit report looking good.

You also shouldn’t apply for any credit, especially in the month between when you apply for your mortgage and when you close on the house. Your home purchase is the only large purchase that should be made. You can’t afford for anything else to negatively impact your credit score.

More: How to Improve Your Credit Score: 12 Tips & Tricks

Not searching out the right neighborhood

Buying your dream home isn’t going to have the same effect if you’re dream home is right beside a garbage dump or backs onto an airport. Before you even begin looking for your ideal home invest some time into looking for your ideal neighborhood. Your real estate agent can help with this. You should consider the school district, and not only if you have kids. Buying real estate in a neighborhood with a good school district will make it easier to re-sell your home if you need to move in the future.

You should also look at crime statistics and the time it will take to commute to work every day. Try going to neighborhoods that pique your interest and talking to people on the streets. Ask them how they like living in the neighborhood and get a sense of how friendly they are. Most people are more than happy to give you their honest opinion on what the neighborhood is like and you get a feel for the community that you can’t get through your computer research of the area. Only after you’ve narrowed your search down to a few choice neighborhoods should you begin to look for individual houses.

Letting your emotions get you in over your head

First-time home buyers are usually very excited! Those excited emotions can lead you astray when you’re trying to make a good financial decision. Buying a home is one of the biggest financial investments you’re ever going to make. So it’s important to let your brain be guided by your heart, but not overrun by it. One of the easiest ways to avoid your emotions hijacking the buying process and getting you to make an offer on a home that you just can’t afford is to avoid looking at homes out of your price range.

It can be tempting to see what’s out there, but doing so can lead you to fall in love with features in a home that your home just can’t afford like that backyard tennis court or the jacuzzi in the master bathroom. When this happens the homes that you can afford feel stale and they fall short in comparison, so do yourself a big favor and stick to your budget.

More: How You Can Compare Mortgage Rates To Ensure You Get The Best Deal

Focusing too much on a large downpayment

It’s true that putting 20% down on a home can help you avoid private mortgage insurance; however, it’s not the be-all and the end-all. Most people just can’t afford to save up that much money. It’s typical to see down payments closer to the 10-15% range in most home purchases. If you’re stuck on saving up 20% you can miss out on a great home because saving that amount can take you years to do. Instead, you should consider putting less down upfront and using any extra savings for other large expenses, emergency savings or even retirement savings.

Private mortgage insurance usually isn’t that expensive and you’re far better off paying the little extra every month if you end up with the house of your dreams. If you can only put a little down then consider looking at home buying programs that are offered through the government for first-time homebuyers. Don’t put your life on hold to save up for a big down payment. It’s not worth it in the long run and your money can be better put to use in other areas of your life.

Only accepting the perfect house

As in all areas of life, perfection in houses just doesn’t exist. You’re never going to find a home that checks all of the boxes on your wishlist. There will always be sacrifices in one area or the other. It’s important to make sure that you find a house that checks off a large number of items on your wishlist. When deciding what’s important to you in a home come up with a wishlist. Then try to put it in order of most important to least important. For example, the number of bedrooms or the size of your kitchen might be very important to you while having an extra bathroom might be nice, but not necessary.

Figure out what your top three necessities are and prioritize these features over all the others. Taking the time to determine which items on your wish list are make or break will help you pick out the best house for you. This way if you find one that checks all of your “must-have” boxes, but it falls short on some of your “nice to have” boxes you’ll know that this is still a good fit for you and you won’t rule out an amazing home for no reason.

Properly research FHA, VA or USDA loans

It’s a seller’s market right now which means that there’s stiff competition to buy a house. A way of helping home buyers finance their homes in this tough market is to consider loans such as the ones you can get from the FHA, VA or USDA. These loans help buyers purchase a home with a lower down payment (as low as 3%) and they also help buyers that some banks won’t finance due to bad credit history. These three loans are all backed by a section of the government.

VA loans are backed by the Department of Veterans Affairs and are offered to any member of the military service and their families. For a VA loan, you can go to a private lender and you won’t have to pay a downpayment. You might have to pay a funding fee but the VA puts a limit on what fees a lender can charge so that you don’t have to pay too much.

FHA loans are backed by the Federal Housing Administration. For a borrower to get an FHA loan they need a credit score of 580 but they don’t require a deposit any greater than 3.5% which is attainable for most buyers. The catch to an FHA loan is that mortgage insurance is mandatory. You don’t have a choice, you have to pay the insurance when you close and once every year. For 3.5% down it’s worth paying the insurance if you’re eligible.

USDA loans are backed by the U.S. Department of Agriculture. These loans are geared towards homebuyers who live in rural areas as opposed to cities. If you live in such an area and you are in a lower income range than you might be eligible for this loan. Their guidelines mostly involve where you live, but you might have to meet some income levels as well. Whether or not you pay a down payment also depends on your individual financial situation.

Take into account all the hidden costs

The monthly cost of your mortgage isn’t the only fee that you have to take into account. You also are going to have to pay other monthly costs associated with owning your own home. For example, you need to estimate your home insurance fees, your property taxes and your new utility costs. You’ll also have to consider fluctuating fees like home maintenance and repairs.

These fluctuating costs can add up quickly so look at some estimates in the area that you’re thinking of moving to so that you can estimate how much savings you should have in case of something going wrong that needs repair on your home. For example, if the home you’re looking at has an older roof and it’s not enough to prevent you from buying the property in the first place but it’s something you think will need to be repaired or replaced in the next few weeks consider putting aside savings to cover that cost so you’re not left without a roof over your head. A good rule of thumb is to have at least 1% of the purchase price of your home available to you for these repairs every year.

Relying on gift money that falls through

It’s fantastic when your family, friends or a charity decide to pitch in towards the down payment on your house by offering you a gift. It’s not as fantastic however when that money falls through, is delayed or there’s miscommunication between you and the generous person offering the gift. Miscommunication over money can lead to a purchase on a house falling through and your relationship with the gifter being negatively affected. In order to prevent this from happening you should sit down with anyone who offers you a gift and you should put on paper how much they’re offering you and when you’ll receive this money. That way there’s no miscommunication.

In order to help out your real estate agents and mortgage lenders, you should keep a paper trail of every time money changes hands in relation to your home purchase. You’ll need this paper trail and a signed gift letter from the person who’s giving you the gift in order for your mortgage lender to verify that the funds are there and that they came from where you said they did.

Look into Homebuyer Rebates

After your home has been purchased, your real estate agent, the buyer’s agent can provide you with a homebuyers rebate that comes out of their commission. This rebate is usually around 1% of the purchase price of your home. There are 10 states that don’t allow homebuyers rebates, so where you live will impact whether or not you can receive one.

Not every agent will provide one, and most won’t freely offer this option, but it doesn’t hurt to ask and you might end up with a bit of money coming back to you at the closing of the house which is when you’ll need it the most. Above all please make sure you continue to educate yourself on the topic. Reading articles like this show that you are on the right path.

If you liked these 14 tips please let us know in the comments below. Please be aware of these Hidden Fees that can affect your numbers when buying a house.

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