You’re tired of your rent going up every year, and your landlord is always slow to fix problems. You’ve saved some money and want to settle down in a place of your own—you’re ready to buy your first home.
You might think, “I’m going to look for homes for sale near me and put an offer in!” Not quite. There are many steps to the home buying process that you have to complete as a first time home buyer, some of which happen before you even start house shopping. Here’s a look at what goes into buying your first home.
Figure Out What You Can Afford
Before you start house shopping, you have to figure out what fits in your budget. Real estate is probably the most expensive thing that you will purchase in your life, and you’re going to be paying it off for years, so it makes sense to determine what you can afford early in the process.
What you can afford is determined by more than just your income. Here are some other considerations that go into figuring out your home budget:
- Your down payment: While a 20 percent down payment was required historically, now you can buy a home with as little as 3.5 percent down. Just be aware that the smaller your down payment is, the larger your monthly payments will be. And if your down payment is less than 20 percent, you will have to pay Private Mortgage Insurance, or PMI, each month until you have 20 percent equity in the house.
- Your credit score: Your credit determines what your interest rate will be. While rates are historically low right now, those low rates may only be available to people with good credit. Those low rates also may not be around for long, so if you’re thinking about buying your first home, now is a perfect time.
- Your mortgage term: Most mortgages for first-time homebuyers are paid off over 30 years, but 15-year and even 10-year mortgages are also available. Typically, these short-term mortgages offer lower interest rates but have substantially higher monthly payments because you pay off the loan much more quickly.
- Your municipality: Principal and interest aren’t the only monthly expenses that you’ll pay when you buy a house. You also have to pay property taxes and homeowner’s insurance, and the rates vary from city to city. Moving a few miles may make a difference of thousands of dollars yearly in taxes.
Other considerations also go into your home budget, like how much of your income you want to spend on a house each month. If you have other significant periodic expenses, like student loans or yearly vacations, perhaps you should plan to spend less on the house.
Talk to a mortgage banker and get pre-approved before you even start looking for homes. This will avoid the unfortunate situation where you find a house that you fall in love with, only to find out that you can’t afford it. A firm pre-approval also makes your offer more attractive to home sellers.
Call a Real Estate Agent
With all of the resources online these days, you might think, “I’m going to look for homes for sale near me by myself!” This can be a mistake. Online sites are useful for showing you the types of homes for sale in your area. Still, information can be inaccurate, and a realtor can provide you with property information not always included on property sites.
Your Realtor Will Find Houses For You
A licensed realtor has the resources and the knowledge to shepherd you through finding a home. They have access to other private online databases from which the public websites pull their information, so a realtor’s data is always up to date. They also may know about houses that have not yet been put on the market, allowing you to see these homes before the general public.
A realtor also deals with the nuts and bolts of finding a home for you, searching listings, and arranging showings. Having a realtor that has toured hundreds of other homes with you when you are looking at houses can be invaluable because a realtor has a critical eye for things that you might not notice. Best of all, as the buyer, you do not pay your realtor a dime; your realtor is paid out of the sale price of the home by the seller.
Put In An Offer
After you’ve found a home you like, it’s time to make an offer to the seller. Your realtor has knowledge of the market and experience buying other houses, so they know what a fair price to pay is, and are trained negotiators to help you get that price.
If you and the seller can agree on a price, you will sign a purchase contract and have to give the seller some amount of “earnest money,” usually one or two percent of the purchase price.
Get An Independent Inspection
After you and the seller sign the contract, you will have a short window to inspect the house with an inspector that you hire. The inspector will take hours looking through every part of the house for problems that you might have missed—problems that could turn a house that looks like a good deal into a money pit later.
After the inspection, you will have the chance to negotiate repairs with the seller, but beware, they’re under no obligation to agree to fix anything. If you got a good price to begin with, then repairs are just the icing on the cake. If the inspection revealed significant problems and you no longer want to buy the house, you can cancel the contract and get your earnest money back.
Get Ready For Closing
If the inspection goes well, there are only a few things left to do. Arrange for movers, buy homeowner’s insurance, and set up utilities and cable at your new house. Work with your mortgage banker to get that loan approved. And feel good knowing that, in a few weeks, you’ll be able to call yourself a homeowner.
On closing day, you’ll sign all of your mortgage paperwork and pay the rest of your down payment. Your down payment typically needs to be made via a wire transfer from your bank to the company handling the closing. It typically cannot be made by personal check or cashier’s check, so be sure you know how to arrange the wire before the closing.
Once the paperwork is signed and the money is wired, you will get the keys. Congratulations! You now own your first home.
If it’s time for you to make the jump into homeownership, or if you have any questions about the process, Chelsea Oelker at Michael Saunders & Company AMI Branch. She can answer all of your questions and get you into a perfect first home.