13 Tips for First-Time Homebuyers
Preparing to Purchase Tips
Buying a home can be a long and intimidating process, but with our first-time homebuyer tips, we’ll make sure you’re equipped with the knowledge you need. We’ll give you tips on how to save for your down payment to what extra fees you might expect.
1. Start Saving
Down Payment
A key step to buying a home is having a down payment as this will affect your mortgage and other housing costs. Ideally, you would want to put down at least 20% of your home purchase price, however, this can vary due to mortgage insurance and interest rates. You could also consider an FHA or VA loan with 0% down. No matter the loan type, be sure to figure out your home budget and create a savings plan to buy your new home.
Closing Costs
Closing costs are fees that you pay when you close on your home and can include costs like title insurance, etc. These expenses can range from 2% to 5% of your loan amount and can add up quickly.
Move-in Expenses
Whether you're moving across the country or down the street, it’s important to account for moving expenses. These expenses can include:
- Buying boxes & supplies
- Renting a truck
- Hiring movers
- Appliances & furniture
- Home repairs & upgrades
2. Determine How Much House You Can Afford
One of the first things you should ask yourself when buying a home is “how much can you afford to spend on a house?” To determine your budget, begin with understanding your financial health: income, credit score, debt, and monthly expenses. Once you have analyzed your finances, calculate how much you can afford to put towards a mortgage. A general recommendation for affordability is your mortgage payment should be no more than 28% of your gross monthly income. You can also use home affordability calculators on sites like Zillow.
3. Check/Strengthen Your Credit
Your credit score plays a major role in the homebuying process. Lenders check your credit score and use it as a factor in determining your loan rates, so having a decent credit score is important. For most loans, at least a 620-credit score is needed, but higher is better and this will vary depending on your lender. Look at your credit history and see if there are any blemishes, like late payments, that could potentially affect your rates. It’s important to try to improve your credit score before applying for loans to have a better chance at to getting the best rates possible.
Selecting A Mortgage Tips
4. Look into First-Time Home Buyer Programs
First-time home buyer programs may help you when buying your first home. They are geared towards lower interest rate mortgages with down payment assistance (sometimes zero money down). Some programs can help with closing costs, as well. Look into programs and check the eligibility requirements, as they can vary by state, city, and county.
5. Explore Your Mortgage Options
When it comes to selecting a mortgage, there are a variety of options available ranging in down payment sizes and eligibility requirements. Popular mortgages to investigate include:
- Conventional loans: home buyer loans not offered by a government entity and are available through banks, mortgage companies, and credit unions.
- FHA Loans: insured by the Federal Housing Administration and provide low down payments, low closing costs, and easy credit qualifications.
- VA loans: available to current and veteran service members provided through the Department of Veteran Affairs. These loans are federally backed but issued through private lenders and usually require no down payment.
- USDA loans: offered to rural home buyers by the U.S. Department of Agriculture.
In addition to choosing the type of loan, you have options for the mortgage length. The most common term is a 30-year fixed-rate mortgage, however, there are shorter terms of 20, 15, and 10 years. Shorter terms can have a higher monthly payment but lower interest costs. Speak to a mortgage lender to find out which loan option you will qualify for and which loan term might best meet your needs.
6. Compare Mortgage Rates and Fees
When researching different mortgage loans, compare the interest rates and various fees from multiple lenders. By doing this, you can ensure you find the best rates for your budget. Some lenders may offer borrower discount points which are fees that you pay upfront to lower the interest rates. Take this into consideration when comparing rates.
7. Get Pre-Approved for a Mortgage
In order to get pre-approved for a mortgage, you will complete an application. The lender will pull your credit report, request documents to verify income, debt, etc. If you qualify, the lender will give you a pre-approval offer to a loan under specific terms, usually good for 90 days.
Receiving a mortgage pre-approval can provide many benefits. It can show the seller you are creditworthy, may reduce the timeline for obtaining your loan, and it gives you an idea of what budget you’ll have to spend.
If you are applying to multiple lenders for preapproval rates, try to apply within a small-time frame like 30 days to limit the dings on your credit score.
Tips on Shopping for A Home
8. Shop for a Home/Neighborhood
When buying a home, consider all your options: new build, fixer-upper, and move-in ready. Think about your long-term needs, and what options would best suit them. If you are planning for a family or long-term home, choose an option that has room to grow. If you buy a fixer-upper, make sure to budget for the repairs and remodeling.
Consider the neighborhood you are moving into - does it have HOA fees and other monthly expenses, is it somewhere you would want to live? Be sure to choose a neighborhood that has amenities that are important to you. Ultimately, decide on a house and neighborhood that fits your lifestyle and budget.
9. Explore Virtual/In-Person Open Houses
When looking at homes, you’ll want to see it virtually or in person. Looking at homes virtually can help you narrow down properties to visit, and help you pick top ones to see in person. If you can see a house in person, try to pay attention to details pictures might not show. When considering a resale home, look at the overall condition of the house and determine if you would need to make any repairs. Discuss the age and condition of the electrical and plumbing systems, consider the condition of the roof and other major parts of the house that could be a large expense down the road. When buying a new home, you have an advantage of a home warranty. Make sure to ask the builder details about that warranty and what it includes.
When touring, try to picture yourself living there and embody what it would be like to live in this home full time.
10. Stick to your Budget
When looking at homes, remember the budget you set. Lenders may offer you more than your budget, but make sure you are only loaned an amount that is still comfortably affordable. Just because they are offering you more money doesn’t mean you should take it; it could end up being a financial burden if not adequately budgeted for. Set your price range and stick to it. To help stay in your range, look at homes that are below your budget and provide room to bid.
Home Purchasing Tips
11. Make an Offer
Once you’ve found your dream home, it's time to make an offer. Determine the best price to offer, and any conditions you want to include within your offer letter. The seller will either accept or counteroffer, this negotiation can go back and forth until you reach a deal. For a new home, schedule a time with a community representative to discuss the base price of the home and what other costs you will have such as options chosen in the design studio and premiums for the home site your new home will be built on.
12. Head to Closing
You did it, the home is yours! Closing, also known as escrow, is when the house is transitioned to you. During this process you pay for your home, including down payments, closing costs, and other fees to the various parties involved.
13. Move in!
You’re all set, it’s time to move in and make your house a home. Congratulations, you are a homeowner!
Questions to Ask Yourself When Purchasing Your First Home
How Much will Property Taxes Cost?
Property taxes vary depending on the state you live in. These taxes are based on the value of the land. When looking at homes, ask what the property tax is. If you have bought the home, use a property tax calculator to determine your cost or visit your county’s tax assessor office/portal to receive your property tax amount.
What are the Hidden Costs of Owning Your First Home?
Owning a home can come with a lot of costs, some expected and unexpected. As a homeowner, you will need to make repairs and maintain the home including appliances.
If you are a part of an HOA, you will need to pay a monthly fee. Talk with your realtor beforehand to determine what expenses and services the HOA provides.
What Type of Home Insurance Coverage is Needed?
Before closing the deal, you should purchase homeowner’s insurance to protect your new home and belongings. There are different types of insurance with various coverage plans, be sure to choose one that works best for you.
We know that buying a home is a difficult process, especially when you are a first-time homebuyer. Shea Homes is here to help you through selecting a mortgage, shopping for a home and purchasing your first home. Check out our Shea Homes communities and find your new home!