Buying a home for the first time can be scary, but as with anything else in life, the right preparation brings about good results. Remember, the right home for you is one you want and can afford.
Step 1: Ask yourself if you’re ready.
You need to decide whether you’re financially ready to buy a home, ask yourself some simple questions:
- Do you have a steady job and income?
- Do you plan on remaining in the same area for a few years?
- Do you have enough money set aside for your down payment and closing costs?
- Do you have an emergency fund?
- Do you live within your means, avoiding credit card debt?
Another consideration is whether you’re mentally prepared for the responsibility. And whether it’s a new home or an old one, things will go wrong. Experienced homeowners know this. First-time buyers don’t.
Step 2: Find out what you can afford.
When you’re sure you have the right mindset to be a homeowner, it’s time to determine how much house you can afford. Probably the best way to do that is to get pre-qualified for a loan. In fact, some real estate agents won’t work with someone who is not pre-qualified.
There are three options for pre-qualifying: go to a lender with whom you have already established rapport, find a real estate agent you trust and follow the agent’s recommendations for a lender, or research lenders online.
Your total monthly mortgage payment — principal, interest, taxes and insurance (or PITI) — should not exceed 28 percent of your monthly gross income. You can calculate a ballpark figure from this information, but then talk to your lender to get a better feel for how much flexibility you might have with different lending arrangements.
Many first-time buyer mortgage programs require only a low down payment or even no money down. If a down payment is required, you may be allowed to use ‘gift’ money from family members and other sources. Some first-time home buyer programs feature no closing costs. There may also be down-payment assistance programs available in your community.”
Remember, the bigger the down payment, the less you’re borrowing, and the less expensive your mortgage will be in the long run.
Step 3: Find out what’s available
Now it’s time to decide where you want to live and research what types of housing are available — one-story single family, condos, town homes, etc. You can get an idea by looking at ads and driving around the community.
In searching for an agent, find one who makes you feel comfortable and, more importantly, one who listens to you. It’s traditional for the real estate agent to represent the seller’s interests, although most state licensing laws require them to treat the buyer fairly. Laws regarding the relationships between real estate agents and clients vary from state to state and buyers should be aware who your agent is working for.
Step 4: Choose a neighborhood.
Once you know the housing stock, you can look at specific areas. Take a drive by at night time to see whether you feel it’s a safe neighborhood. If you have children, you’ll want to check out the quality of the schools. You may want to check out what types of large-scale facilities (airports, highways, chemical plants, etc.) are nearby, and whether they’re convenient for shopping, work and schools. You can do much of this independently, but you can also ask your agent to help you find sources of information about such things.
Step 5: Define your house and find it.
Now, you can narrow down the features you want in a house. Do you want an energy-efficient model? Do you want two stories, a basement, a bathroom downstairs or a large back yard?
When you’ve found a house that has your most important features, is in the right neighborhood and is affordable, you’re ready to buy.
Step 6: Do a home inspection.
Some recommend that an offer should be contingent on a home inspection. As the buyer, you may have to cover the cost of the inspection. If you’re unsatisfied with the results, you may ask the seller to pay for certain repairs or to lower the price, or you may decide to walk away from the deal.
Home buyers should have an inspection done regardless of the age of the home and should interview several inspectors before hiring one. A home inspection could uncover defects that may become very costly to repair after assuming ownership. It may also uncover safety issues, water infiltration issues, roof problems, structural issues, etc.
Normally, real estate contracts only allow three to 10 days for a home inspection after acceptance of the contract and that doesn’t allow the purchaser adequate time to find a qualified home inspector.
Step 7: Shop around for homeowners insurance.
Your lender will require you to carry homeowners insurance. Such insurance comes in many flavors, so it’s a good idea to search for a policy that meets your needs for protection while being easy on your pocketbook. Access insurance information that is appropriate for your state. Many states provide data on typical rates charged by insurers, as well as information on the frequency of consumer complaints against a company.
Step 7: Negotiate.
Once you’ve found the house you want, you should make an offer. You have to decide before you start negotiating what your make or break point is, and stick to it. Just be reasonable. Don’t expect the seller to give you a 50 percent discount on a good property.
Step 8: Closing.
In a number of states, it is customary for each party to have an attorney review the closing papers and to be present at closing. In California, escrow and title companies are used for this. Check your local policies.
Step 9: Move in.
You’ve done all the homework and bought a great home. Enjoy it.