Are you in the market for your very first home? If so, congratulations – this is a huge milestone in your life! But before you start viewing houses, there are a few things you need to know. Here are ten tips that will help make the home-buying process as smooth and stress-free as possible.
For a conventional home mortgage loan, you’ll have to pay cash-out-of-pocket for a 20 percent down payment, 1-3 percent earnest money deposit, and 3-6 percent for closing costs. So if the home you’re buying costs $300,000, make sure to have about $80,000 or more before you start to look for houses.
You’ll also need to plan for moving expenses, such as hiring a moving company, renting a truck, or buying packing supplies.
Furthermore, it’s a good idea to have an emergency fund in place because there are often unforeseen expenses with homeownership.
Prepare Your Numbers
In addition to the cash that you’ll need to purchase a house, you’ll also have to have a certain credit score and debt-to-income ratio.
To qualify for a mortgage, you’ll need to have a credit score of at least 620. If your credit is less than ideal, work on improving it before applying for a home loan. This could mean paying down existing debt or disputing any errors on your reports. It may take several months to boost your number up, so plan ahead.
Lenders will also look at your debt-to-income ratio (DTI). Your DTI needs to be 36 percent or lower. To calculate this number, add up all of the monthly payments you owe, including mortgages and other loans, as well as minimum credit card payments, then divide that by your income.
Don't Make Any Significant Changes
It’s crucial to maintain a solid, healthy work history of at least two years or more before applying for your home mortgage loan. If you plan to change jobs, it’s best to wait until after the closing date.
You also don’t want to make any significant purchases like cars, furniture, or major appliances. These could affect your DTI and credit score, which would, in turn, impact your ability to get a mortgage.
Once you’ve prepared your finances and have a good credit score, get pre-approved for a home loan. This will give you an accurate idea of how much house you can afford as well as the interest rate and monthly payment.
After getting pre-approved, stick to looking at homes that are within your price range so that there aren’t any surprises when it comes time to make an offer on one.
Have A Wish List
Before viewing homes, think about what’s most important to you in terms of location, amenities included with the house itself (e.g., fireplace or pool), number of bedrooms/bathrooms needed, garage size, square footage requirements, etc. Make sure that all these things are clearly marked on your wish list, which will make it easier for you and your agent to find the ideal home. Be reasonable with your wish list, expect to compromise, and trust your real estate agent’s advice on getting the most house for your money.
Get A Real Estate Agent
You’ll want to choose an experienced real estate agent who specializes in finding buyers their dream homes. A good real estate agent will be able to answer questions about the home-buying process and help you find a home that meets your needs.
Shop in a Buyers' Market
When the housing market is favoring buyers, it’s the perfect time to buy. This usually happens when the economy is unstable, or interest rates are low.
In a buyers’ market, there are more houses for sale than there are people looking to buy them. This means that sellers are often more flexible with their asking prices and may be willing to negotiate.
Don't Emotionally Attach to a House
When you’re looking at houses, it’s important to stay objective. When you find one you’d like to buy, it’s easy to fall in love and start daydreaming about what it’ll be like to live there. However, there are a lot of things that could happen between your decision to make an offer and closing day that could cause the deal to fall through.
For example, the seller may choose another offer over yours, the house may not appraise for the sales price, or the home may not pass inspection.
Consider Resale Value
Chances are, your first home is a starter home, and you may choose to upsize in the future as your needs change. When you buy a house, consider its resale value.
You don’t want to overspend on your home and end up losing money when you go to sell it.
Get a Home Warranty
When you buy a house, the seller typically offers a one-year warranty for all of the appliances and systems in the home. However, this usually doesn’t cover things like HVAC units or roofing.
A home warranty is a type of insurance policy that will cover the repair or replacement of any major appliance or system in your home should it break down within a certain amount of time after purchase. This can be a lifesaver if something goes wrong shortly after buying your home.
Before you start looking for houses, make sure you’ve got your credit, DTI, and savings prepped. Get pre-approved for a home mortgage loan and find the right real estate agent. Be realistic with your wish list and your budget. Don’t emotionally attach to any property until closing day, and don’t make any changes to your job, credit history, or cash flow until after you’ve received your keys. Think about the home’s resale value and consider a warranty to cover unexpected repairs.
Talk with a professional, local buyers’ real estate agent today for more tips for buying your first house.