Buying a house for the first time is a learning experience, and learning via experience can be expensive. Get ahead of the game by reviewing tips that can help you prepare for purchasing a home.
First-time home buyer tips—getting started
Prepare to buy a home by following these steps:
1. Check your credit report early
Your credit report is a big factor in whether you get approved for a mortgage, and what it may cost you.
As soon as you first think about buying a home, check your credit report. If there are mistakes there, it can take a while to get them corrected. If you have incidents of missed or late payments, it may take even longer to establish a more favorable credit history.
2. Research special first-time home buyer programs
The Federal Housing Administration (FHA) has mortgage programs geared toward helping first-time home buyers, as do Fannie Mae and Freddie Mac, corporations that finance large portions of U.S. mortgages.
Your state or local government might also offer assistance for first-time home buyers, or incentives for purchases under certain conditions. Search online for “state home buyer assistance programs” to find out what help is available in your area.
Knowing what programs are available and what you have to do to be eligible can help guide you on how to finance a home purchase.
3. Build a down payment
Start saving money for a down payment as far in advance of buying a home as possible.
While first-time home buyer programs may allow for down payments as low as 3 percent, putting down 10 or 20 percent can save you money by allowing you to borrow less and making you eligible for lower interest rates and mortgage insurance premiums.
4. Save for closing costs
The buyer’s portion of closing costs can be around 3 or 4 percent of the purchase price, so this is another significant expense to start saving for well in advance.
While your down payment and closing costs come at the back end of the home buying process, the longer you save toward them, the easier it may be to come up with the money.
5. Gain local knowledge
Even while you’re getting your credit in order and saving money, start paying close attention to your local housing market. Knowing how properties are priced and how quickly they’re selling can help guide you when you reach the next phase of the process: finding a home.
Advice on finding a home
With your credit report in good order, down payment in hand, and a solid understanding of your local real estate market, you can begin an earnest search for your first home. Keep in mind the following advice when buying a house for the first time:
1. Differentiate between dream house vs. starter home
First-time home buyers often face a tough choice: think big or be pragmatic.
Holding out for your dream house may delay your entry into the market, or make it impossible to buy a home within a reasonable time frame. So, think about what compromises you could accept to make home buying more affordable.
As you start house hunting, be clear on your objective: are you going for the ideal or a practical alternative for the time being?
2. Don’t overreach
As you ponder what kind of home you want, keep in mind that a big mistake first-time home buyers often make is overreaching and ending up with a mortgage they can’t afford.
Do some detailed budgeting and use a mortgage calculator to see what you can afford with a little cushion to spare. Use saving for a down payment as a test for how well you can live within this budget.
3. Attend open houses
Making appointments to view properties before you’re sure what you’re looking for can be a time-consuming process and make you feel pressured. Open houses give you an opportunity to see a variety of properties more quickly and with less pressure.
This can help you get a better feel for what features you like and don’t like, and should also allow you to meet a few real estate agents before you commit to working with one.
4. Understand the real estate agent’s role
A good real estate agent can help you find properties that match your needs and guide you through the home buying process. This is valuable, but be aware that just because you’re working with an agent does not necessarily make that agent your advocate.
Real estate agents are paid when a deal is closed, out of the seller’s proceeds. Their financial interest is in getting a deal done; it’s up to you to decide whether a deal is right for you.
Begin to prepare for financing your future home before you find the house you want.