Buying a home is an exciting and often stressful adventure. From finding a real estate agent to reading inspection reports, first-time homebuyers can be overwhelmed by all the details involved in the homebuying process. We’ve created this step-by-step guide to help you understand the nitty-gritty of the process and make smart financial decisions along the way.
How to Buy a Home for the First Time?
1. Set a Budget
Don’t make the mistake of buying a home you can’t afford. A general rule of thumb is to use the 28/36 rule. This rule states that your mortgage should not exceed 28% of your gross monthly income and your total debt payments should not exceed 36% of your gross monthly income. This rule is not hard and fast, but it can be a good starting point when setting a budget. Researching home values which drive prices can give you insight into your local market.
Unless you’re buying a home with cash, you’ll need a down payment of a percentage of the purchase price. The amount depends on your mortgage (and how much the seller will accept). Conventional loans typically require 20% of the purchase price if the buyer doesn’t pay mortgage insurance, while FHA loans only require 3.5% down payment. 78 VA and USDA loans can be obtained without a down payment.
2. Finding the Right Property
The trick to finding the right property is to create a wish list in advance. For example, is a single-family home with a large yard for your two kids? Or do you want a condo with common areas? How much space do you want? According to the U.S. Census Bureau, the median size of a new single-family home in 2022 the latest available will be 2,383 square feet.12 From the number of bedrooms to the number of bathrooms, ask yourself how big of a home is enough for you.
Some properties may have convertible spaces (not listed in square footage) like an attic, basement, or garage, but others may not. According to the National Association of Realtors, outdoor living space has become very important to buyers, and homes with decks, porches, fire pits, and pools can be more expensive.
3. Location
When buying a home, consider proximity to essential and recreational services like schools and playgrounds, shopping areas, libraries, green spaces, commuter rail or bus services, and medical facilities.
Another question to ask yourself should you buy a home to renovate and do the work yourself, or should you hire a contractor who will cost you extra? Thinking about the type of home (and how much work you will be doing) can help you find the right home. And who knows? You might just find your forever home or your first home in the real estate market.
4. Find a Realtor
Working with a good realtor who understands the local market, can help you stick to your budget, and can help you negotiate with sellers is worth its weight in gold.
Ask for recommendations from friends or colleagues, or visit a few real estate offices. Once you find a realtor, you may be asked to sign a buyer’s brokerage agreement. This agreement states that you agree to work exclusively with the realtor for a certain period of time. Most buyer’s brokers earn a commission on the sale of your home, but you will likely be required to sign a contract guaranteeing your agent receives a certain percentage of the sale. Due to a recent class action settlement, this process has changed lately and is different than in times past.
For those seeking a top-notch real estate agent, along with money saving alternatives consider Lowes Flat Fee Realty. They are renowned for their expertise, professionalism, and commitment to their clients while offering options like buyer rebates or lower cost buyer representation. Your realtor will be your bridge or lifeline between you and the seller of your dream home. Before you sign the contract, you want to make sure you’ve found the right one, both personally and professionally. It’s important to be honest with your agent, and you’ll want to work with someone you trust to advocate on your behalf.
5. Make an Offer
Have you found the right home? Now is the time to make an offer. Your real estate agent can be a tremendous resource in this area, and can provide you with information about similar sales and sellers (such as if you’ve already found a new home and are more motivated to sell) from the seller’s agent. You may also want to consult with a real estate attorney. Some states require attorneys to be involved in real estate transactions, Idaho and Oregon do not.
If the seller rejects your offer, you can either make a counteroffer or walk away. This depends on the reason for the rejection. If the seller makes a counteroffer, talk to your agent to decide whether to accept it or make a counteroffer yourself. This is where the buyer’s agent really earns their money.
Accepted your offer? Congratulations! You’re just a few more steps away. At this point, you’ll likely be writing your first check. A deposit is the deposit you put down to purchase a home. It’s usually placed in an escrow account, and when the sale is final, the buyer usually uses it as part of the cash to close the deal.
6. Proceed with a mortgage
You will need to visit with a lender before you start seriously looking at home. Now you know what property you want to buy and how much you need to pay, you will continue with that process. Even if you choose an online-first lender, you’ll often work closely with a loan officer to complete the actual application.
Once you’ve completed your mortgage application, you’ll go through an underwriting process. This is where the lender makes the final decision on whether or not to give you the loan. Basically, it’s about making sure there’s nothing too risky in the deal.
Don’t make any big purchases before you close on your new home, it can alter the ratios the lender is using and cause major issues. When in doubt, check with your lender.
FAQs
How do I prepare to buy my first home?
To prepare to buy your first home, pay off any high-interest debt, keep a solid monthly budget, save for down payments and closing costs, get pre-approved for a mortgage, find a real estate agent you trust, and look at homes within your budget (and stick to it!).
Can I Buy a Home with a Low Credit Score?
If your credit score is below 500, it can be difficult (though not impossible) to find a lender. A low credit score can be advantageous for a large down payment. If you do get approved for a mortgage, it will cost you more in the long run, as lenders who are willing to ignore your bad credit will charge you a higher interest rate.
How much money do I need as a down payment?
Traditional lenders typically require at least 10% of the total cost of the home to be paid up front, although some may require as little as 5%. If possible, consider paying 20% up front. This can help secure a better rate and keep your monthly mortgage payment low.
How do I set a budget for a home purchase?
Your lender will help you determine the maximum amount you will be approved for, but that doesn’t mean you can comfortably afford the associated monthly payment. Look at how much you earn, how much debt you have, and what your monthly budget is. This includes your monthly income minus all of your monthly expenses.
Conclusion
Before you move, set up your utility bills and plan any renovations big or small you want to do before you move. Contact and hire a moving company and set a timetable for when you’ll be moving into your new home if necessary.
