Buying a home for the first time can feel like an overwhelming process for many people. For example, if you are borrowing money to purchase a house, you will need to get approved for a mortgage - which can seem like a really tedious experience. However, knowing what to expect can make the homebuying process much easier, especially for first-time buyers.
Go over your finances
Before you start house hunting, you need to carefully analyze your finances.
Start by reviewing your credit report to ensure there are no errors that might be hurt your credit score. If you do find any mistakes, contact the credit agency about fixing them - so that your rating can be corrected.
Take a look at how much debt you owe. For instance, do you have student loans, auto loans, or high amounts of credit card debt? If so, it might make sense for you to concentrate on paying down (at least) some of your debt before buying a home.
You also need to look over your budget to see where your money is going. Are there any expenses that you could reduce to give you more disposable income that could go toward buying a home?
Calculate how much house you can afford
Many first-time homebuyers are surprised to find out how expensive it can be to own a home.
Therefore, once you have a good picture of your finances, you can begin to figure out how much house you can actually afford. In addition to a monthly mortgage payment, you will need enough money to pay for homeowners insurance, property taxes, and household maintenance and repairs.
Most real estate professionals recommend that homeowners should plan to spend between one percent to three percent of their home's value each year on upkeep and repairs. That means if you buy a $200,000 house, you will likely spend at least $2,000 to $6,000 a year on maintenance costs.
Therefore, just because you might be able to afford a $200,000 mortgage, it doesn't necessarily mean that you will be able to afford to own and maintain a $200,000 house.
Determine your housing needs and wants
After you have a figure in mind for how much house you can afford, you can start going over what you need and want in a home. For example, do you need to live in a neighborhood that is fairly close to work and/or school to minimize your commute time? Do you want a house with a bigger yard so that you have a lot of outdoor space?
Write down a list of realistic expectations that you can use to guide your housing search.
Get pre-qualified for a mortgage
As a first-time homebuyer, you can do yourself a big favor by getting pre-qualified for a mortgage. Many real estate agents prefer working with buyers who have already been qualified for a home loan by a lender. It makes the closing process much easier. Furthermore, it makes you look like a more serious buyer to sellers. In fact, a lot of sellers will take your offer more seriously if they know that it's backed up by a mortgage pre-qualification letter.
You should talk to at least three lenders to make sure that you find a home loan with the best rates and terms.
Find a good real estate agent to work with
Finally, first-time homebuyers are smart to work with a real estate agent who knows their local housing market, as well as the ins and outs of the homebuying process. For instance, experienced realtors can help you with making offers and responding to counteroffers. They can often negotiate better deals for you - like getting the seller to pay for essential home repairs before you agree to close on the house.
A real estate agent can help you spot those "hidden gems" in the housing market that other buyers might be missing. Plus, the buyer doesn't have to pay the real estate agent since the commission comes out of the proceeds from the sale of the home.
In short, as a first-time homebuyer, you need to assess your finances to determine how much house you can afford to buy. Then, consider your needs and wants to create a criteria for your housing search. Do yourself a favor by getting pre-qualified for a mortgage. Also, find a good real estate agent who has a lot of experience working in your local housing market to help guide you through the homebuying process.
