Buying a home for the first time can be a daunting experience. If this is your first time in the market, remember that knowledge is power. Below, we present five key lessons to remember as you start shopping for your first home.
1. Get pre-approved for a loan before shopping around.
It may be tempting to start looking for and touring homes before actually speaking with a lender about a mortgage. But if you do end up finding a house that you truly can't live without, it will be an added challenge if you must be approved for the loan after the fact. Markets can be fierce, and you don't want the sale to go to someone else before you have time to speak to lenders.
Set yourself up for success, speak with lenders first, and set your maximum budget according to the pre-approved or pre-qualified loan amount provided by your lender. At the same time, keep in mind that you don't have to use the pre-approved maximum amount.
2. Don't forget about the hidden costs of your new home.
When you start shopping around for a new home, set the maximum purchase price at or below the recommended amount. It should also work within your monthly budget. A good rule of thumb - try not to spend more than 25-30% of your monthly take-home salary on housing.
While your monthly rent payment may have been substantial in the past, paying costs associated with owning your own home is much different. You'll be liable for your mortgage payment, but on top of that, you'll be paying for water, electricity, heating, garbage and recycling, and the Internet.
You'll also be paying for maintenance and upkeep, which can, unfortunately, result in several unexpected expenses. Broken stair step? That's your responsibility. Furnace down? All repair costs are up to you. Leaky faucet? That's you too.
Instead of instantly going with the newest and nicest home that matches the amount you qualified for, factor these hidden costs into what you should expect to pay each month.
3. Decide on your non-negotiable features from the beginning.
It's best to identify what you're looking for and need in your home from the very beginning. If you have a large family, one bathroom probably won't cut it. If you love to cook, a tiny kitchen isn't for you.
Of course, at the same time, you'll need to be reasonable with your expectations.
Let your real estate agent know what your needs are, but don't be afraid to look at homes that don't seem to fit the bill right away. You may be pleasantly surprised.
4. Don't sacrifice location for amenities.
As they say, location is everything. And it's true! While you may love the extra half-bath on the first floor, the super-size garage, and the garbage disposal in the kitchen, these amenities are less valuable than a great location for your home.
Let's say you have children. You'll want to find a location that's in a good school district. You may also want to be near your place of employment, grocery stores, and in a neighborhood that's not on a busy street. These are things your real estate agent should be able to help you with, so make sure to stipulate your location requirements from the get-go.
5. Understand your closing costs.
Paying for the home itself will undoubtedly be your largest expense, but don't make the mistake of forgetting about closing costs. You'll most likely need to pay for an appraiser and take care of the real-estate attorney's costs. On average, closing costs will be about 2-5% of your home's purchase price. Finally, don't forget about your moving costs, which can quickly add up.
Buying a home as a first-time homebuyer can be a lengthy and challenging process. Be prepared, and consider this advice.