House-hunting Tips for First-time Homebuyers

The first time is always memorable because it is exciting. You are venturing into previously unknown territory. That is true for getting your first house to make into your dream home.

Home shopping is not just a matter of going into neighborhoods you envision living in and looking for for-sale signs in the front yards. Nor looking through the internet for online listings of houses for sale. The home buying process is long and could be complicated especially for first-time buyers. It is important to get the necessary information correctly, from beginning to end, especially for a first-time homebuyer. These will guide you through the home search process until the closing process.

Prepare Your Finances

This should go without saying, with or without a certified financial planner to assist you. However, because it is important, it must be said, and detailed, even before you go around home shopping.

Determine your budget early.

This should be the first among your financial goals, one of the smart money moves you can make. Setting your budget is of prime importance - all other decisions are logically consequential to the budget that you set - the amount of home loan or mortgage you will apply for, the home price of the house you will search for, the earnest money offer, or down payment, etc. Doing this will help you avoid any financial stress, even save money as a first-time homebuyer. The state of your personal finance is of utmost importance.

An important note: Prepare for a 10-20% down payment fund as a separate entry in your budget. Most importantly, stick to your budget!

Establish an emergency fund.

Even before starting, you have to save money for an Emergency Fund. This is not for down payment or closing costs. This emergency fund must be equivalent to 3-to-6 months of living expenses. The house you will eventually own is your responsibility, no one else's. Its maintenance, its upkeep. Make monthly saving goals and timeframes and monitor your progress.

While you are building that fund, pay off your debts, all of it, as much as possible. Aside from having the full capacity to financially keep up your future house, banks and multiple lenders look at potential borrowers with low to zero debts as part of the credit report, when you begin your search for payment assistance.

Explore mortgage options.

There are various mortgage types with diverse qualifications and down payment requirements. The most common types, which you might potentially qualify for are the following:

  • Conventional Mortgages. These are government-guaranteed. Some types of conventional mortgages specific for first-time buyers call for only a 3% down payment.

  • VA Loans. These are guaranteed by the Department of Veterans Affairs. Those who qualify are veterans and current military personnel. There is no down payment required, usually.

  • FHA Loans. These are loans from private mortgage lenders, under the regulation of, and insured by the Federal Housing Administration. Down payment requirements can be as low as 3.5%.

  • USDA Loans. USDA Home Loans are part of the USDA loan program, the USDA Rural Development Guaranteed Housing Loan Program. It is a mortgage loan available to rural property owners, guaranteed by the Department of Agriculture. No down payment is usually required.

The mortgage terms have various monthly mortgage payment options too. Homebuyers usually choose a 30-year fixed-rate mortgage, i.e., paid off in 30 years with a fixed interest rate and monthly payment scheme. A shorter term, say 15 years, would have a lower interest rate but your monthly payment costs would be higher.

Compare mortgage rates and fees. If you don't have a financial planner or adviser, it would be helpful to note the Consumer Financial Protection Bureau recommendation to request the loan estimates for the same mortgage type from various mortgage lenders to allow you to compare the costs, interest rates, origination fees, etc. and give you an idea how much mortgage you will take. A mortgage lender might offer "buying the discount points," i.e., paying for the upfront fees paid by the borrower to lower the interest rate, and consequently, the monthly payments. If you have the money for it available, that would be a good idea.

Search Home Buyer Assistance Programs in your state. A good many states and cities and even some counties have programs for first-time homebuyers. These programs have a combination of low-interest rate mortgages and down payment assistance, also for closing costs. At the same time, some of these programs offer tax credits!

Secure a Preapproval Letter before going house hunting.

This is a letter stating a lender's offer of a certain amount of loan under specific conditions. This preapproval letter is an indication to the real estate agent and home sellers that you are a serious buyer. Thus, you will have an edge over other prospective house hunters who do not have this yet, especially as a first-time home buyer.

Secure this document when you've decided to take the step towards home shopping. The lender will compile your credit report papers to confirm your income, assets, debt. Applying for a preapproval letter from several lenders (to compare interest rates) will not affect your credit score negatively if you apply within a limited time frame, like 30 days.

Hire a Real Estate Agent

Real estate agents are licensed professional specialists in finding the perfect house for you to buy. They will walk you through the whole process, then show you the worth of the house, if its location fits your preferences, help prepare the required documents for financing, secure the services of other specialists in the real estate industry like appraisers, inspectors, etc.

Get in touch with Barry Jenkins - Better Homes & Gardens Real Estate | Real Estate Agents in Virginia Beach, VA. You can call him directly at 757 654 5059 or email him directly at barry@yourfriendlyagent.net. You can also read our article on the guide to finding a real estate agent for first-time homebuyers.

Research Neighborhoods for Best Fit

It is not just going to be your first home. It will be your home for a long time, maybe until you retire. You can't afford to make a decision that you will regret after. All the time and effort you make in preparation for this goal is definitely going to be worth it.

Make a must-have list of the houses you want.

That would include the neighborhood and its characteristics if you want urban living or in the suburbs with an easy commute to your workplace and all the features of an urban community. It could be the location of the house - what would you wish to be within walking distance, a park, school, shops & restaurants, a church. Would you wish it to be situated some distance from the street with a yard in front, on tree-lined sidewalks? You have to take into consideration the quality and location of the neighborhood when choosing. You could ask your real estate agent for statistics and other information on the incidence of crime in that neighborhood and the school nearest the home.

The house itself - do you want a sprawling bungalow type or a two-story balconied one? How many bedrooms and bathrooms do you want? What other rooms do you wish your house to have - a study, music room, playroom, nursery, etc. - or space to make such rooms?

Find a home for sale in your price range.

You can search online, which many newbie homebuyers do. Then your agent can do the rest of the process for you. You can also use MLS (Multiple Listing Service). This could be your source of information to the house that fits your criteria in your preferred neighborhood. If you are not familiar with this, ask your real estate agent. The MLS is a local or regional service that collects real estate listings, i.e., homes that are for sale.

Think long term and be patient.

This doesn't mean just not rushing your decision. It means thinking of future possibilities concerning your home, and the neighborhood it is located in.

Find a property in or near a nice neighborhood. Buying a property at a lower price would make it easy for you to add value to your home. Put in upgrades like granite countertops. Watch closely any economic activities in the area, like new companies setting up, or reopening, as well as property values, if housing prices are rising frequently.

Negotiate Thoroughly

This is a stage in the home buying process where the real estate agent is crucial. The agent would be experienced in the negotiating process, especially if the inspection will come up with issues in the property. Your agent could represent you in collaborating with the seller before the actual purchase. Or s/he could settle the purchase price and you do the fixes. You have to be prepared to negotiate with the seller. Discuss this with your agent so you could get the best possible deal on the property.

Plan your offer carefully.

Discuss with and listen to your agent's recommendations when you make your offer. The agent's advice will make the difference between a successful conclusion and a failure! Be ready to prepare other deals, if the sale is an auction, if the house is in a hot market, i.e., when there are more buyers which results in a higher closed sale rate.

Make a competitive offer - that is within your budget.

You must be careful against making an offer on impulse and it is higher than your budget or what you can afford. As a first-time homebuyer, you might not be able to figure out the price of the homes you like. Your agent would know. Ask her/him what the best possible offer could be and if the price is equivalent to your budget and property values. S/he could also help you make your offer stand out among other bids.

Prepare for Closing

Don't forget to save for Closing Costs.

Closing costs refer to expenses over the cost of the property. These costs are for loan origination fees, discount points, title searches, title insurance, appraisal fees, surveys, taxes, deed recording fees, and credit report charges.

It has been mentioned in the section on the budget. The importance of saving for closing costs cannot be undermined.

Don't skip the inspection.

Home inspection results usually reveal problems and issues discovered and could result in costly repairs. An experienced inspector can find a lot more in a property than an ordinary eagle eye can see. The inspector's report will be an extensive explanation of the condition of the property inspected. He can then advise you on the necessary costs in your purchase.

Some questions to consider before you buy:

  • How much mortgage are you qualified for?

Get working on getting that mortgage qualification before you start the process. Make a pre-approved loan before making any offer.

  • How is your financial health?

Consider your savings - you must have an emergency fund for up to six months. The purchase of a first home entails substantial costs. You will be needing money to cover those costs as well as the emergency costs.

  • Who will guide you through the home buying process?

You would have hired a real estate agent by now. S/He will show you the homes that you want and are within your budget. He will advise you on your purchase and help in the negotiations as you complete the sale process.

  • How much home can you actually afford?

The amount of loan you can get doesn't really mean you can have sufficient funding with which to buy your first home. This is not a rare occurrence among first-time home buyers, eventually ending up "house poor" with hardly enough money left until they pay off the monthly mortgage payment! The purchase price is one of the most crucial factors to consider when you decide what you will get and the amount you will need to pay.

  • What is the best home feature you want?

Buying a home for the first time is probably your biggest purchase ever. You just deserve that this purchase fulfills your needs and desires as much as possible. When you plan the basic features you wish for, like the neighborhood, the size of the house, bathroom layouts, kitchen, etc., these should be answered by your purchase. Websites and your agent can help you recognize the features that will give your money the best value.

  • Which type of home will best suit your needs?

The many options available in residential properties each has its particular pros and cons. Your decision lies in your goal of buying a property to own. You could maybe even save on the purchase price in a type you'd like by purchasing a fixer-upper.

 

Frequently Asked Questions

  • It is well-advised to have from 3-to-6 months of living expenses worth as a cash reserve, NOT for down payment or closing expenses. Those will be separate items in your budget.

  • Most mortgage programs, even conventional loans, need a 620 credit score, at least. Other types of loans have lower minimums, some even have no credit score requirements. The common credit score scale requirements range from 350-to-850.

  • We have listed above the basic tips and to-dos in preparing for house-shopping, especially for first-time homebuyers.

  • There are several mistakes that real estate market newbies for a home purchase tend to make. Here are the most common of those that first-time homebuyers should NOT do before venturing into the housing market. This is your "note to future self."

    Don't finance a big item, say a car, before applying for a mortgage. Or make big purchases on appliances or furniture, on credit. Lenders are going to make a final credit inquiry and new debts could put your loan application at risk. And it's not just your credit score that might be jeopardized. Doing those would raise your DTI, debt-to-income ratio that making you a less attractive borrower in the eyes of a lender. If your DTI goes above a certain number, you would then be regarded as a risky borrower. You must avoid those big purchases or financing for at least six months before you decide to be a first-time home buyer.

    Don't max out your credit card. Your credit score would be lowered, the extra debt payment will offset your income and your qualification for corporate finance would be decreased. Financial advisers would suggest keeping your credit below 30% of your total limit, not just to maintain a low debt level but to qualify for a good mortgage rate.

    Don't change careers before you buy. Approval for a mortgage loan needs, among others, evidence of consistent employment. Career or job changes can cause lending issues, with salary changes, or pay structure from say, salary to commission or monthly to hourly pay. A work history of at least 2 years with the same employer or at least the same line of work would be to your advantage.

    Don't assume a 20% down payment is needed. Another common presumption by first-time home buyers. A 20% down payment might have benefits but it is not always the best option. Waiting to save up for a 20% down payment will set you back farther in your timeline, while house prices would be rising. There are loan programs with 0% down payment and others with 3.5%-10% down payment requirements. Seek out a financial adviser, or even your real estate agent for this.

    Don't go into house shopping without preapproval. Many sellers would wish to show their homes only to serious buyers and would request to see a preapproval letter. Also, you could only get an idea of the house you can afford until you acquire preapproval from a lender.

    Don't go for the first mortgage offer, or the first lender you talk to. Check out the rates at your regular banks, credit unions, even a mortgage broker. You can have some assurance of having decided on the best deal only after you have gotten comparative rate quotes from at least 3-to-5 companies. Further, don't think that your long-time bank will give you a good deal. Big banks usually have higher interest rates and even closing costs.

    Don't make any big, drastic financial changes before the closing. Significant changes would be like changing careers, buying a new car, getting new credit cards or increasing credit balance, applying for a new loan or credit line. any of these moves could easily affect your DTI and your credit-worthiness, negatively. Until the loan funds and thus, your house, is in your name the approved loan is NOT final. Until then, the lender can easily cancel its approval of your loan if there is any significant material change in the buyer's situation.

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