The life-changing move from renting to owning a property can be exhilarating and daunting at the same time, particularly for first-time homebuyers. It’s a long-term financial investment that could affect your future.
A proactive mindset and sound financial decisions are the cornerstone of every home purchase, but lifestyle considerations should also dictate what your first home and primary residence should be like.
The road to home ownership can be overwhelming but also empowering. You’ll understand why when you finish reading this article.
Start With Your ‘Whys’ and ‘Whats’
Before looking at listings, ask yourself why you need to buy a home. Maybe you’re tired of paying for other people’s mortgages and want stability as you start a family. Whatever the reason may be, your ‘why’ will guide every decision, from the location to the budget and the kind of home that fits your household size and lifestyle.
Think about your current and future needs when creating a list of non-negotiables. Then layer your nice-to-haves, like an updated kitchen or walk-in closets, for example.
Home buying can be fraught with uncertainties. Even so, you can rely on online and offline knowledge bases to make a more informed decision. First-time homebuyers can browse through different pre-purchase homeownership education sources that are valuable to both home buyers and sellers.
Get Your Finances in Shape
After learning your ‘why’ and ‘what’, it’s time to focus on the how. The majority of first-time homebuyers purchase their home through a mortgage. Taking this route means you need to get serious with your financial status or building credit.
Make sure your credit score is great. Aim to reach 700 or more to get lower interest rates that can save you thousands over the life of the loan. Review your credit report and dispute any errors.
Also, you need to calculate how much you can afford to pay each month for a home loan. Factor in mortgage insurance and property taxes, alongside other ownership costs.
Private mortgage lenders typically require a 20% down payment. Anything less will inflate your monthly mortgage fees, thanks to the private mortgage insurance, which protects lenders against defaulting borrowers.
Seek Pre-Approval
Either way, it’s best to get pre-approved before a mortgage application. The process aims to set your purchase price limits or the maximum amount you can afford for a new home. Lenders look at your current household income and debt-to-income ratio, including your credit history, to determine the amount they’re willing to lend you.
At this stage, you must shop around for the best rates and lowest fees. Note that most first-time homebuyers access a 30-year, fixed-rate government-insured loan. However, private lenders offer conventional mortgage products with more flexible interest rates and terms while still following the rules set by Fannie Mae. The downside is that they’re reserved for buyers with stellar credit scores.
Consider Government-Backed Loan Programs
Federal and state agencies have first-time homebuyer programs particularly for low- to moderate-income households. They measure the Area Median Income and set income limits to determine who qualifies for affordable housing and mortgage assistance in areas with different costs of living.
Known for their low interest rates and less stringent borrowing and credit score requirements, these programs are perfect for first-time home buyers who need financial assistance. The Federal Housing Authority’s FHA loans offer a low 3.5% downpayment. At the same time, qualified borrowers may enjoy zero cash-out through United States Department of Agriculture or USDA loans and Veterans Affairs or VA loans.
Most states have their own form of homeownership grants or down payment assistance programs, even closing costs assistance, that make home buying less costly to first-time property owners.
Choose a Trusted Real Estate Agent
Understanding the housing sector can be complex, and it’s easy to get lost in the maze. That’s why your chosen real estate agent should be ready to provide much-needed homebuyer education and advocate for your best interest.
Look for a buyer’s agent who often works with first-time buyers and specializes on the neighborhoods you’re targeting. They should be familiar with the mortgage programs available, Freddie Mac’s Home Possible loans, and link you to a loan officer in any of the participating lenders.
Find the Perfect Home and Make an Offer
Now comes the most exciting and sometimes dreadful part of the home-buying process. Prepare to spend weeks touring homes, but don’t lose focus. Review your list of non-negotiables, whether you’re leaning towards a customary single-family home or an unconventional manufactured home.
Imagine your life in each of the homes you visit. When evaluating homes, prioritize location and structural integrity over cosmetic issues. You can always design your home later to make it look better, but you’re putting your life and money in danger if you move into a house with serious foundational problems. Consider community development and vulnerability to natural disasters, too, so you don’t have to get additional flood insurance for protection.
Act quickly if you find the one, considering the competitiveness of most markets. Your agent should help you craft a competitive offer and negotiate the best deal.
Due Diligence and the Closing Process
The time between acceptance and closing involves critical inspections and paperwork. The lender will order an appraisal to ensure that the property’s value matches the loan amount.
Hire a home inspector, ideally one who isn’t recommended by an agent, to thoroughly examine and validate that the property complies with building codes and standards. If your inspector uncovers major issues, you can either walk away or negotiate for repairs and a price reduction.
Once done, you’ll receive a closing disclosure which itemizes the closing costs and other fees. On the big day, get ready to sign documents and transfer the funds to get the keys to your new home.
Concluding Thoughts
Buying your first home is a deeply personal decision, and the journey can be complex. But gathering knowledge, preparing well, and patience can help you get through the challenges.
When you walk through the door of your own house, all the hard work you’ve put in will be worth it. Because this milestone involves more than picking a place to live, it’s choosing how to live now and in the future.