Buying a home for the first time comes with its own set of lessons to be learned and potential mistakes to be made. But while you can always learn through trial and error, you’ll be better off learning from the mistakes of others, especially when you’re talking about something as significant as a home purchase.
Here are some of the more common lessons first-time homebuyers have learned from their own experiences that you may want to take into consideration.
1. Your Pre-Approved Amount is Your Absolute Max
One of the first things you should do before you begin your house hunting process is get pre-approved for a mortgage. That way you’ll be able to determine how much you’ll be able to afford and focus your attention on properties that fall within your budget. Not only that, you’ll be perceived as a serious buyer to sellers, which can go a long way if you’re looking to buy in the middle of a hot seller’s market.
But just because you’re pre-approved for a specific amount does not mean that you should necessarily look at properties in the upper range. Doing so could potentially leave you with little money left over to pay for other expenses, such as utilities, groceries, and your retirement savings. Rather than become “house poor,” you’d be better off spending a lot less than what your mortgage broker says you may be able to get approved for.
2. Start Saving Up Well in Advance
Buying a house is a big deal, obviously. It’s probably going to be the most expensive purchase you ever make in your entire life and will require significant financial savings.
More specifically, you’ll need a decent-sized down payment to get approved for a mortgage. The more expensive the home, the higher this down payment will likely be. The more you can save up in advance, the less you will have to borrow to finance your home purchase.
If you’re able to come up with at least 20% down, you could save yourself on Private Mortgage Insurance (PMI) payments, which is applied to home loans that are more than 80% of the purchase price of a property. While this might sound like an astronomical amount (which it often is), it can be a lot easier to achieve if you start saving early.
At the very least, saving well in advance of your home purchase will increase the chances of getting approved for a mortgage with reasonable terms. Putting away a few dollars every month starting at an early age can turn into a sizable amount when you’re finally ready to buy.
3. Be Realistic About Your Needs and Wants
Every buyer has their own set of desires for the home they plan to purchase in the future and should keep this list handy when they visit homes on the market. However, it’s important to be realistic about the traits on this list relative to what your budget is. You might not necessarily be able to get everything on your wish list of your budget is rather tight.
Try to separate your “wants” versus your “needs” when visiting homes, and make sure you pay attention to the types of homes and the features they have within your price range. Doing so will give you a good idea of what you can expect to find with the money you have to spend. Just remember that when you’re on a budget, you might not necessarily be able to get everything you want. The sooner you accept this fact, the lower the odds of you getting disappointed.
4. Use a Mortgage Specialist to Shop Around For You
Rather than heading straight for the local bank for a mortgage, speaking with different lenders could land you a much better rate. Much like you would shop around to find the best price on any other type of product, you’ll want to compare rates with various lenders. A lower interest rate can potentially save you thousands of dollars over the term of your mortgage, so it’s worth it to take the time to shop around for the best home loan package.
While you can certainly do this yourself, you can save a lot of time by having a mortgage broker do this for you. Brokers don’t work for banks; instead, they work for you, and as such, they have your best interests in mind. This could translate into a lot of money saved.
5. Budget For Unexpected Expenses When You Close
Closing costs can really add up, and a lot of newbie buyers may assume that the spending stops after the house has been financed and the real estate commissions have been paid. Unfortunately, the costs associated with buying a home continue after you close.
There are PMI payments (if applicable), homeowner’s insurance, property taxes, maintenance, utilities, appraisal fees, moving fees, and even expenses related to furnishing the home. Be sure to tally up the potential costs associated with each and budget accordingly so that you’ve got enough money to cover these closing costs.
6. Attend Your Home Inspection
A home inspection is a crucial contingency to include in your offer. It essentially gives you a chance to have a licensed professional inspect the property and ensure it is in proper condition before you take possession. But just because you schedule an inspection doesn’t mean you shouldn’t be there.
In fact, it’s recommended that buyers attend the home inspection. This will provide them with the opportunity to ask as many questions as possible and get educated on the systems and components of the home while your inspector is still there. You’d be amazed at how much you can learn from a couple of hours of scoping out all components of the home with a professional inspector.
7. Don’t Forgo the Help of a Real Estate Professional
As a buyer, there’s no reason not to hire a real estate agent to help you find the right home and negotiate a deal on your behalf. Typically, buyers don’t pay commissions anyway – usually the seller does, though this can be different in some cases.
Your agent will help you find homes that meet your criteria, negotiate with the seller to get the best price possible, and even help you after you take possession. Before you start your home search, make sure you’ve teamed up with a professional real estate agent who has your back. They’ll do their best to make the home buying process as seamless as possible.
The Bottom Line
Buying your first home may be an incredibly exciting time, but it can also be filled with unknowns that could cause you to make a few mistakes along the way. Rather than learn the hard way, consider learning from those who’ve already been in your shoes. And as always, partner up with a seasoned real estate agent who will help guide you and steer you in the right direction.