Are you interested in acquiring your own house but are unsure of the steps involved in getting one? The best advice for first-time home buyers is to financially prepare to purchase a house.
Having enough money to purchase a home depends on having your finances in good order. This generally means not owing too much and having a good credit score.
You may be dreaming of shiplap and modern farmhouse kitchens, but are you ready to purchase and own a home? There’s a lot more involved when buying a house for the first time than simply knowing whether it’s a buyers’ or sellers’ market.
Here, we will discuss how to prepare to buy a house with tips for first-time home buyers so you will be prepared to search for a house when you are ready.
How to prepare to buy a house: Advice for first time home buyers
There are multiple tips for first-time homebuyers, but we selected the easiest steps for financial preparation. Buying a house can be quite daunting, but we have simplified the process as much as possible so you will be financially prepared when you close on your purchase.
1. Know how much you can afford
The best advice for first-time home buyers is to purchase a house you love and can afford. Otherwise, you may end up house poor, and you certainly do not want that!
One great thing you’ll learn when house hunting is that your realtor will show you some homes that are way above your price range.
Because they know many people will pay more for their property, numerous sellers are charging exorbitant prices. Avoid this trap! Your monthly budget for a home is based on your after-tax income.
When considering signing on the dotted line, ask yourself if you can afford it comfortably without feeling burdened by the monthly mortgage payments. To make sure you can afford it, calculate your monthly income by 30%.
Let’s say your take-home pay is $2,000 monthly. So, 30% of $2,000 is $600 per month. One of the most important first-time home buyer tips is to purchase a home that you can comfortably afford.
2. Have 20% saved for a house down payment
When searching for a new residence, it is easy to get caught up in the fantasy and forget about the D-word. No, of course, we do not mean divorce (or Dallas!). We’re talking about a down payment. Depending on your eligibility for loans, you’ll be expected to make a downpayment anywhere between 5% and 20%.
Many lenders won’t lend you more than 80% of the cost of the house you want to buy. Can’t make a 20% down payment? Expect to pay more for interest. To save up a down payment on your new home, open a savings account specifically for saving, and calculate how much you need.
Then, start building your savings into your monthly budget so that you have a strategy to save for a down payment. Doing this will help you estimate how long it will take you to save money.
If you have financial assistance from family or close relatives, you will need a donation letter for a home loan that specifies where the funds came from.
Our tips for homeowners saving up for their down payment are to pay as much down as possible and pay off your home as soon as possible. The more you pay down, the less you owe, and the sooner you can sell your home.
3. Know what your credit score is
How’s your credit score? Never forget that banks look at your credit rating and credit history to evaluate your risk as a potential customer.
Before shopping for a home, it is necessary to inspect one’s credit report to check for mistakes.
Statistics show that 1 in 5 credit reports contains errors. Always verify that your information is correct. One of the best ways to succeed in home ownership is to improve your credit rating so you can get the best interest rate.
If you have bad credit, it is still possible to purchase a home. Here are some tips for purchasing a home with bad credit.
4. Have all your financial documentation in order
Another important tip for first time homeowners is to ensure all your finances are in order. Your lender will evaluate your financial documents in order to approve your mortgage application, so be sure you have them available.
When applying for a mortgage, bring important documents like your W2s, tax returns, bank statements, loan statements, credit card statements, and more. These should be readily available to your lender when he or she requests them.
5. Get pre-approved for a mortgage
The first step in buying a home is finding a loan. It is ideal to compare different loan products and loans before choosing the best one.
A fixed-rate mortgage has the same interest rate throughout the loan term, whereas an adjustable-rate mortgage has a variable rate after a certain amount of time has passed.
Ask about any associated mortgage costs and mortgage insurance. You will also want to get a mortgage qualification letter to show your prospective buyers that you are a serious and qualified buyer when you begin house hunting.
6. Visit your potential home at night
Purchasing a house for the first time is a big deal. You should try to imagine yourself living somewhere you love, so you’ll want to visit your potential new home several times before signing the contract.
Our advice for first-time homebuyers is to go to your house at night, too. Why is that? Because you can observe how your home appears to you at night.
Some areas look nice and calm during the day, but at night they may become loud or crowded. This can save you from moving to an area where you don’t feel comfortable living.
7. Prepare for other associated costs
For new homeowners, the most important thing is to prepare for all the expenses. This is vital! Buying a new house is more than just about the monthly mortgage payment, ladies! You will need to pay for inspections, closing costs, and movers’ bills.
Consider factoring these costs into your budget as you save toward purchasing your new home. Not only do there have to be many hidden costs, but there are also other principal expenses as well. I have made a few below.
You know closing costs are part of the process of buying a house, and you’ll have to pay them, but what exactly is included in closing costs? In a nutshell, they are the fees lenders, and third parties charge when you buy a home, and they can include:
One of the most important first-time home buyer tips is to plan for the price of closing costs.
One of the steps to buying a house for the first time is purchasing homeowner’s insurance. If you’re not buying your house outright, your lender will require you to have homeowner’s insurance on your new home before closing on it. You can add this to your monthly invoice or buy the policy separately.
Be sure to shop around for the best rate possible. Some companies offer bundled deals where you can get discounted pricing for bundling all of your policies with the same company. One of the smartest tips for first-time homebuyers is to compare rates.
It’s a good idea to plan for moving costs when buying your first house. In the excitement of getting your first home, it can be challenging to keep in mind that moving out of your old residence and into your new home is an unavoidable house purchasing expense.
If you leave your apartment before its lease term expires, you may be penalized for breaking your rental agreement.
Additionally, professional movers will charge a fee, typically by the hour. If you choose to do your own move, you will need to consider the expenses of packing materials and rental trucks.
Depending on how far you are moving, you may also have to stay in a hotel for a night or two. Moving is, of course, part of buying a house.
If you’re moving into a community with a homeowners’ association, it will be the seller’s responsibility to pay the dues until the closing date. After that, they will become your responsibility.
Many organizations encourage regular payments rather than paying all at once, so you may need to pay shortly after moving in. It’s important to factor this amount into your budget when considering if a home fits within your budget.
If you’re looking for a resale home, you certainly have a lot to choose from. The homes are decorated in lots of different ways, so it’s very likely you’ll find something cosmetic you want to change immediately. Perhaps you want to repaint the walls a different color or change the kinds of window treatments or carpeting. Even if you’re moving to a new home, you’ll have to set up new furniture.
Starting from scratch is exciting, but it can also be expensive. New home builders often do not install blinds or window treatments and do not choose particularly bland colors for their walls. Therefore, keep these expenses in mind when you are house-hunting for the first time!
Don’t forget your future expenses as first time home buyers
Owning your home is incredibly exciting. However, owning your own home means you are totally responsible for all home repairs and maintenance. One of the most valuable first-time house buyer suggestions we can give you is building an emergency fund to cover unanticipated home repairs.
Having money for emergencies can save you from accumulating excessive debt. Your home insurance policy may not cover everything, so make certain to thoroughly understand your policy.
Your emergency savings should be transferred to your monthly budget, so you’ll be a financially prepared homeowner!
Use our advice for first time home buyers to be financially successful
Now you know how to buy a house! You should also know what your ideal living situation is. Of course, you want a place you can call your own, but a home is also an excellent way to build equity.
Equity takes time to build. If you only house hop for a couple of years, you may not have made much equity in your home. Homeownership is terrific, and it is certainly something worth considering adding to your portfolio.
However, in order to fully experience all of the benefits of homeownership, you need to be prepared for the long-term costs involved. This noble pursuit will also allow you to reap the many benefits of getting your own home. When you are ready, you can begin planning how to pay off your mortgage early or perhaps even purchase a house to rent out.
Be sure to take a look at our free course on how to buy your first house!