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Buying a home is one of the most expensive purchases you’ll ever make in your lifetime. All said, it’s important you go into this process with all the knowledge needed to make a smart purchase. As a first-time homebuyer, there’s a lot you need to know, such as creating a budget, shopping for the right mortgage lender, and actually finding the perfect home. Below, we’ll go over the basics of all you need to know about finding your forever home.
Create a budget
You can’t just wake up one day and say, “I’m going to buy a house!” While we wish it were that easy, it takes years of planning before buying a home. The first line of business is making sure you have enough money in the first place. The last thing you want is to get tied up in a home that’s out of your budget range and is draining your savings account.
As you begin your process of buying a home, you first want to take a look at your credit score. Your credit score plays a major part in the terms and conditions of your mortgage. A lower credit score means you most likely won’t get approved for an attractive mortgage because the lender will see you as a risky investment. To boost your credit score, correct any mistakes and errors, pay off your debts, pay on time, and leave older accounts open.
As you work on your credit score, continue saving money, and start planning a budget. In most cases, you will need to put a 20 percent down payment on your home. For example, if your new home is $300,000, you will need to pay $60,000 on the spot. It’s even better to place a bigger down payment, as you won’t have to pay private mortgage insurance (PMI). What is PMI? Private mortgage insurance protects lenders from potentially risky loan agreements, which can cost you more money in the long run.
So, take as much time as you can to afford a sizable down payment by creating a budget, cutting out any unnecessary expenses, and living as frugally as you can.
Understand mortgage options
Once you get closer to buying your first home, it’s important to understand your mortgage options. The two most common mortgage options are fixed-rate and adjustable-rate mortgages.
- Fixed-rate mortgages require you to pay the same interest rate for the life of your mortgage. These are attractive because they’re dependable, and you can budget how much you need to spend every month on your mortgage.
- Adjustable-rate mortgages have interest rates that vary depending on an index. As the index rises and falls, so does your mortgage’s interest rate. This can be beneficial if the index score drops relatively low, but can be harmful if your interest rate increases dramatically.
You’ll also have the option of choosing a 15-year or 30-year term. 15-year terms are often viewed as less risky than 30-year terms, and means you’ll pay off your home quicker. Make sure to pick a mortgage with monthly payments you can afford, and shop around for mortgage lenders with the best rates and terms.
Make a “must-have” list
As you’re in the process of getting preapproved for a mortgage, make a “must-have” list that contains all of the things you want your new home to have, such as eco-friendly energy use or an outdoor pool. Some “must-haves” you may want to consider include:
- Number of bedrooms and bathrooms
- Handicap accessibility
- Local schools
- Central air conditioning and heating
- Square footage
- Laundry room
- Finished basement
- Move-in ready or fixer-upper
- Single story or multiple stories
- Storage space
Creating this list will help you and your realtor find the perfect home for you.
Hire a real estate agent
Once you’ve been preapproved for your mortgage and are ready to find a new home, hire a real estate agent that knows your local area and can help you find a home and negotiate a fair price. A good realtor should have your best interests in mind and be willing to work with you to find the home of your dreams. To ensure your real estate agent is on your side, consider holding interviews and bringing a few different local realtors in.
Buying your first home
Becoming a first-time homebuyer is an exciting experience. You finally have a place to call your own, you can decorate it however you choose, and you can raise or start a family. However, it’s important you do your research when finding your first home. From creating a budget to hiring a realtor, these tips will help you navigate through this experience with ease.
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