Top Tips for First Time Home Buyers
You’re on the hunt for your first home. It is an exciting milestone in your life. Not to mention one of the largest financial decisions you may ever make. Don’t fall into the “rookie” home-buyer category. Our advice? The more you know about the process, the easier (and less daunting) it is going to be.
We are here to help. These are some of our “top tips” for you to remember when buying a home.
The (sometimes) forgotten credit score
The credit score. Your mortgage company, of course, will pull that score, but it is still a good number know before starting the home-buying process. If there are any mistakes or issues with your score, it is easier to remedy those before you have found that perfect home. Additionally, knowing your score in advance will allow you the opportunity to repair any minor blemishes. One more good thing to know- your mortgage banker (and us!) can sometimes provide tips on how to deal with those flaws.
Pre-approval letters are an absolute must
So, what is a pre-approval letter? It’s a letter from your mortgage lender stating what loan amount the borrower (you) is qualified for. So, yes, stating how large of a loan you are able to take out.
Now, why they are important? First and foremost, it allows you to look for homes that are in your price-range. It will save you a lot of time (and potentially a lot of stress) knowing what you can afford and searching accordingly. Then, when you do find a home you want to put an offer on, having that pre-approval letter puts you ahead of the game. While not a guarantee, sellers may take your offer more seriously since you have already been pre-approved for a loan. Not to mention, they may be more willing to lower the asking price, cover closing costs or make other allowances.
Down payments made easy
Whether you are a first time home-buyer or are looking to buy again, you have probably been thinking about that “down payment.” The larger down payment you make, the smaller mortgage you have. And, subsequently, the less you have to pay back over the course of the loan.
Is there such thing as “too big” of a down payment? Actually, yes! A 20% down payment is typically viewed as “ideal” by lenders. When you put 20% down, you don’t have to pay private mortgage insurance (PMI) which provides insurance to your lender, in the chance you default on your mortgage. Additionally, it can qualify you for a lower interest rate than someone who makes a smaller down payment.
Realistically, however, 20% is a significant sum of money, especially depending on the house you are looking at. A lower down payment does allow you to become a homeowner faster because you won’t have to save up as much money before buying.
Whether you have the 20% readily available or not, there is one important fact to remember- making a down payment is never a bad investment. Putting money into your home is lower risk than, let’s say, investing it in the stock market. It is a good idea for any homebuyer because it ultimately reduces your risk and allows for immediate home equity. If you have questions or wonder what size down payment is best for you, we recommend discussing your particular situation with your lender. They can provide insight into your unique situation.
Life happens- be prepared!
You’ve found the house. You’ve been approved for a loan. You’re good to go, right? One thing we always recommend is reserving cash for emergencies. Because, life happens! The last thing you want is to move into your new home and find yourself in dire need of money (and fast!). So, plan accordingly when making your down payment and considering your loan options. It’s better to be prepared!
Consider the resale
It’s your first home, you’re excited! You may not be planning to sell in the foreseeable future, but it is important to think about selling your home. If (or when) the time to sell your home comes, will it be easy or difficult to do so? Thinking about the preferences of the “average” homebuyer and keeping those preferences in mind while finding your own home will make reselling the home that much easier.
One huge factor is the school district. Maybe you don’t have children in your home right now, so you’re not thinking about schools. But finding a home in a desirable school district, or even one with a school of choice nearby, could be an added benefit for the resale of your home.
Full disclosure and home inspections
While most states do require sellers to disclose any potential problems with the home or the property, they may not always be aware of existing structural issues. Although most purchase agreements are dependent upon a home inspection, you should 100% demand one. Spending the money to hire a licensed professional to inspect your potential new home is the only way to guarantee there are no major structural issues with the home.
What will a comprehensive inspection include? Heating and cooling systems, plumbing and electrical systems, structural integrity of walls, floors, ceilings, foundation and roof. The condition of gutters, insulation, ventilation, major appliances, garage… Finding an issue with any of these things can be extremely costly, so discovering them before signing any paperwork is a huge money saver.
You should also be present for the inspection. Ask questions as you go through the house. Sure, houses need repairs, but there may be a chance the problems with the house will be so expensive it is no longer a home you are interested in. It may seem like a lot of money now to pay for a home inspection, but you could ultimately be saving yourself thousands in the future if the house does have major issues.
The hidden costs
Buying a home can feel like a whirlwind. But while you are thinking about a down payment, an affordable monthly mortgage payment and even realator costs, there are a few “hidden” costs that many first time home buyers forget about. Homeowners insurance, property taxes, appraisal fees, moving costs, escrow costs, tax service fee, credit report fee… Just to name a few.
Ask questions. Make sure you are aware of any and all fees, taxes and additional costs you may need to pay before the “buying” process is complete. And, finally, be prepared for just about anything. When it comes to owning your own home, there’s nothing wrong with being a little “over-prepared.”
By Natasha Mason