You have taken the leap and decided that becoming a homeowner is right for you. It’s a big time in your life and you will have a lot to do over the next few months as you search for your perfect dream house. You know that putting in the effort will be worth it in the end, but do you still find yourself asking where to start? Do mortgages, closing costs, and debt to income ratios still have you feeling a little overwhelmed? We’re here to walk you through what you can likely expect when looking to purchase a home and offer up some advice to (hopefully) smooth out the process when it starts to feel a little rough. Continue reading to learn what to expect when buying a house for the first time.
Finding Your First Home
Current homeowners always have advice on what they would have done differently when buying their first home. Consider asking those around you who have bought homes for their advice. What was difficult for them? What would they wish they would have known before starting the home buying process? Then, be sure to answer those questions for your situation or prepare for a similar experience so you feel ready and well equipped. Additionally, here are some things to keep in mind as you start your home buying journey.
Identify your Must-Haves and Nice-to-Haves
Before you begin your home search, it is important to figure out what exactly you are looking for. The easiest way to do this is to sit down and make a list of your “must-haves”, what would be “nice-to-have”, what’s “flexible”, and what are “deal-breakers.” This will help you determine the location, size, and style of home you are going to looking for. Having a clear understanding of what exactly you are looking for in a home, and where you are willing to make concessions if a property is not perfect, will make finding your ideal home much easier. Be sure to get inputs from all parties (co-buyers, family members, etc.) who will be involved with the purchase of the house. If you need a little help getting started, here is a template that will help guide your thought process of what your dream home must-have, what are deal breakers and everything in between. Simply print it out and have everyone who has a say in your future home put their thoughts in writing.
Explore the Area Before Buying a House
Once you have an idea of what you are looking for in a home, it’s time to start looking to see what is out there. Start this process by exploring on your own without a realtor so you don’t feel obligated to make any rushed decisions. Check out different neighborhoods to see which areas you like the most, where you feel most comfortable, distances from work or school, etc. Take and save pictures of your favorite houses for future reference. You can also use a real estate app while you are driving around to help identify an average price point per location and home type to help narrow down which neighborhoods you’d like to consider.
Understand Your Down Payment
Everyone always says it’s hard, but you can’t really know what it’s like to save for a big down payment until you do it yourself! While it may feel stressful at times saving up for the down payment for your first home, remember that this sum will mean you gain equity in your home from the beginning and will affect how much you are required to pay on your mortgage each month.
Understanding how much you can put down on a house will also give you a better idea of what price of home you can realistically afford. Online home affordability calculators can give you a high-level idea of how much you can afford on a house, and how the size of your planned down payment will affect your monthly mortgage payments. Starting there can give you a rough estimate of the home type and size you may be able to afford, or if you may need to try and put more down on your home. Use our Mortgage Calculator to estimate your monthly payment.
Research Loan Options
Another important thing to understand before buying a home is knowing how you are going to finance it. Between all the different kinds of loans and rules and regulations effecting different properties, there is no one-size-fits-all mortgage option.
The price of the property, the amount of your down payment, and your credit history are all important factors to consider when choosing which type of loan is right for you. Be sure to research potential loan options and prepare a list of questions to ask when you meet with a lender for the first time.
Navigating the Mortgage Loan Process
Once you have an idea about which type of loan (or loans) you may be interested in exploring, reach out to a mortgage lender to find out more about options that apply to you. A lender will work with you to determine how much you can afford to spend on a house and how much your mortgage payments will be. They will look at a variety of different factors to assess your financial status to get you prequalified for a loan. One of the things they will be looking for is how large your debt to income ratio is. Your debt-to-income ratio is determined by taking all your monthly expenses, and dividing it by your pre-tax income.
Typically, a smaller debt to income ratio is preferred and may help you in the loan process as lenders believe that you are more likely to be able to make all your mortgage payments. With that said, if you have a high ratio, it does not mean that you will not get a loan. The best thing to do is know your ratio and discuss options with your lender.
There is a difference in financing when buying a constructed house, or when building new with a company like Shea. Mortgages for new homes can be different since the price may fluctuate slightly as you customize the home to your desire which causes some differences in processes than if purchasing a previously constructed home. When working with Shea Homes, we have a specialized mortgage team – Shea Mortgage – that will make your home buying process as easy as possible and you can learn more about homebuilder loans on our blog, here. Whether you plan to use a broker, lender, or are planning to secure a mortgage with Shea Mortgage, download and complete this checklist so you are well prepared for your first financial meeting.
Focusing Your Search
Once you have a firm understanding of the kind of home you can afford and are pre-qualified for a loan, it’s time to get serious. If you are planning to buy an already built home, finding a local realtor will help you navigate what homes are on the market. These people will be your guides, but it does not mean your work is over. Expect to spend a lot of time on your home search, especially during a seller’s market when buying demand and competition is high. Plan on spending weekends looking at properties and to get calls from your realtor at work if a perfect home is up for sale. While in the home searching process, try to be flexible with your schedule, if you can drop what you are doing to be the first at an open house – you may have a better chance of getting the home!
Alternatively, if you are planning to build a new home, visit a sales office and talk to a representative who can help you find a model, site and customization options that suit your needs.
Putting in an Offer on a House
Once you have found your dream home and have figured out how you are going to finance it, it is time to make an offer. For first-time homebuyers, this is typically a very stressful part of the process. Luckily, there will be someone there to help you through the home buying process, your realtor. Even so, it is good to understand the steps to making an offer on a home:
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Understand the market
Make sure to do your research on the current market, the neighborhood, and other listings to get an idea of what the house is worth.
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Determine a smart offer, and make it!
Remember that the listing price is not necessarily the ideal price for the home. You and your realtor will do extensive research to determine what a competitive offer would be for the property you are looking at. Know what you can afford, but also realize that you may not be the only one looking at the property.
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Be prepared to negotiate
Buying a house is a business transaction and needs to be beneficial for both the buyer and seller. If your initial offer is not initially accepted, negotiate with the seller to determine if you can work out a deal. Be flexible to be able to settle on a deal that you all can agree to. If you cannot reach an agreement, understand that it is not going to work out and start looking for another house. Eventually, you will find the property that is right for you.
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Know the closing costs
Once you find the perfect home and have settled on a deal, it’s time to make it official and close on your first home! Typically, there is a closing fee associated with a home sale. Be sure to talk to your realtor or sales representative to figure out how much you will owe in closing costs so you can budget that into your plan. Once all the paperwork has been processed, you will officially be a homeowner.
Purchasing a new home with a sales agent or realtor is somewhat of a different process because the amount you put down will fluctuate from a base price mostly based on the customization options and location specifications you approve and desire. Instead of being a bidding war with others on the price of a home, you have more control as you approve additions that fit your family’s lifestyle.
Dealing with Difficulties in the First Time Home Buying Process
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Be prepared to live on a budget
Like we mentioned before, buying a house is a big endeavor. Be prepared to be on a budget in order to save for your down payment. Talk to your friends and loved ones about how this may affect your going-out abilities and instead plan on doing fun things that are more affordable!
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Make sure everyone’s on the same page
If you are buying the home with another person, or multiple people, make sure all co-buyers are on the same page from the beginning. You would not want to get to the point of almost making an offer and having someone back out because the home is not what they want. Open communication throughout the process is key when purchasing a home.
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Be open to up-and-coming areas
The neighborhood or area you want to live in may be too expensive, too small, or may just not fit what you need. As you are looking for houses, be open to new areas that you might not typically consider. Who knows, you might find a neighborhood you have never heard of that has everything you want. It’s worth at least driving through the neighborhood and giving it a look!
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Be prepared and don’t get down
The most important thing to remember as you set off on your home buying journey, is to not get discouraged. Be prepared that you may not get the first “dream home” you make an offer on, or the second or the fourth. Don’t let that get you down. All good things take time, and eventually you will be able to close on your first home.
What other questions do you have about buying your first home? Comment below!