Although becoming a first-time home buyer is exciting and fulfilling, it can also feel very overwhelming! Along with your desire to buy a home that you'll love, you want to make sure that you won’t be crippling your other financial goals for the future.
I’ve put together some very basic tips for first-time home buyers as they tackle the home-buying process.
Pay Off Debt and Set Aside an Emergency Fund
Owning a home is extremely expensive, even if your monthly mortgage payment will be similar to the current rental amount you are paying.
Once you own a home, you will be responsible for all the maintenance costs. Upkeep of the home and property, repairs, hydro, heating and cooling costs, home owners insurance, property taxes etc., all fall to the home owner.
If at all possible, you should try to be debt-free before you buy your first home. Also, ideally, you should have an emergency fund of three to six months of expenses, just in case.
As you’re shopping for your first home and thrilled about the opportunity to decorate, be careful---always be conscious of your budget.Taking on new debt in the middle of buying a house could delay the approval of your mortgage.
How Much Can You Afford?
You may be tempted to make an impulsive purchase. Doing so could cause you to be paying a mortgage well into retirement. Before you get too emotionally attached to that dream house, check your monthly budget. You need to leave room in your budget for other things (like car repairs, car insurance, dentist bills, taxes, maintenance etc.) No more than 30% of your gross annual income should go to your mortgage payment.
Your Down Payment and Mortgage
Save at least 20% for your down payment on your new home.
- Adjustable-Rate Mortgages: They might have low initial interest rate, but lenders adjust the rate, and transfer the cost of rising interest rates to you.
- A 15-year term creates a higher monthly payment, but you’ll be able to pay off your mortgage in half the time,. They also have a lower interest rate, and save thousands of dollars in interest.
- 30-year mortgages offer a lower monthly payment. But when you do the math you will realize you pay a lot more money on a 30-year mortgage in the long run!
You need to pay for the closing costs as well as your down payment. Closing costs are about 3–4% of the purchase price of your home.Your lender will give you a specific number so you know exactly what you will need to pay on closing day. The fees pay for important steps in the home-buying process, including:
- Home inspection
- Credit report
- Attorney fees
- Homeowner’s insurance
Get Preapproved for a Loan
When you have enough cash saved to pay for 20% of your home and closing costs, you’re ready to be pre-qualified for a loan. Get a preapproval letter from your lender before you start your home search with your realtor. Preapproval shows sellers that you’re a serious buyer.
Find Your Future Home
You have found an experienced, professional realtor you trust and have a great rapport with. You've discussed exactly what you are looking for in a home and its location. Now, find some homes online that you like and send them to your real estate agent.
Your realtor can use a multiple listing service (MLS) to find homes that meet your personal criteria, in the areas you prefer. You will be able to view a large number of properties for sale in the marketplace. Your real estate agent will also provide valuable market expertise and can help you find great deals on homes as soon as (or even before) they’re listed.
After you’ve found some homes for sale in your price range, be careful not to make a decision based on the property alone. Make sure you include the quality of the neighborhood as well as the location in your decision.
Ask your real estate agent for information on crime rates, the quality of schools around your prospective neighborhoods and the amenities available in the community. Calculate your commute times to be sure they will be manageable. Visit the neighborhood at different times and on different days. Check traffic conditions and noise levels.You will want to choose a neighborhood that you and your family will be comfortable with for many years in the future.
Attend Some Open Houses
Once you’ve decided which neighborhoods you like, attend some open houses. It’s a great way to learn more about different areas.
Think of finding the most affordable house in the very best neighborhood. Why not build value into a less expensive home by adding a few thoughtful, prestige upgrades?
Make an Offer
When you’ve found the home you want (and are able to afford), it is difficult to know how much you should offer. You’re already preapproved for a loan. Rely on the expertise of your real estate agent to give you best advice about what might be a competitive offer.
Prepare for Closing
When the seller accepts your offer, the closing process begins. The closing process takes approximately 45 days. This will give you lots of time to handle closing items.Your real estate agent will schedule all of the last steps, from home inspection to the final walkthrough.
Be sure to take your time and thoroughly read every document. Ask your real estate agent to explain anything you don’t understand.
Are You Ready to Get Started?
Your real estate professional will help you find the right home, negotiate the deal, and help you to see the process through until closing.
Congratulations! Wishing you much success and happiness in your new home!