Buying your first home can be an incredibly daunting concept. Property is likely to be the single most expensive purchase you will ever make in your lifetime and the pressure to ensure that you make the right decision can be immense.
The process and paperwork can seem complicated and there are a number of considerations that you need to make before you even begin house-hunting. Here are some of our guidelines for first time home buyers.
Considerations before you buy
What type of property are you looking for?
Whether you are a single person looking to purchase a small apartment or a family looking to purchase a house, you need to ensure that the type of property you purchase fits your current and near future circumstances. The costs associated with buying your first property are substantial meaning that you should be sure that whatever type of home you are looking for will suit your planned circumstances for at least the next few years.
What is your budget or home loan qualification?
Before you even start looking at properties, you need to get an indication of how much lenders will be prepared to give you. This will help you in the house-hunting process as you will know what properties are within your budget. The amount you can borrow will depend on a number of factors, some include your earnings, any debts you may have and the security of your employment. The amount of down-payment you are able to offer may also have an impact on your mortgage amount. Additionally, just because a bank or lender may offer you a $500k home loan, it doesn’t necessarily mean you should borrow the full amount. Managing monthly mortgage payments is one thing, but there are numerous ongoing costs including property taxes, insurances, maintenance and upkeep that need to be considered along with utility bills. There may also be unexpected expenses that occur that you will need to be able to cover. You should also consider how your income may change in the future such as if you are planning to start a family, take time off from work or go back to studying.
It is absolutely worth considering borrowing slightly less to reduce your monthly mortgage payments and give you a little more flexibility with your finances.
Finding a good realtor.
Many people boast that they do not need a realtor in order to make a property purchase, but a realtor or broker is an essential resource and support for anyone buying a home and in particular first time buyers. A good realtor will not just find you your dream property, but will guide you through the entire process including getting a mortgage, completing the paperwork and negotiating with sellers.
The Basic Process
- Establish you can afford to buy a home. Ensure you have a down-payment or the means to procure one (many states offer home-buying programs to help), speak to lenders to see how much you can borrow and afford to repay, and secure your mortgage.
- Find your dream home. Work with a realtor to find the property that is right for you.
- Work with your realtor to make an offer on your chosen property.
- Pay a good faith deposit and enter escrow. Escrow is the period of time when the seller removes their property from the market with the contractual expectation that you will continue to completion of the purchase subject to a satisfactory inspection. This is generally about 30 days.
- Complete any necessary inspections. Inspections ensure that the house is safe and structurally sound. If anything is discovered that was not previously disclosed by the seller, you may be able to make further negotiations on the price. You can also usually retract the offer and get your deposit back if you are unable to reach a satisfactory agreement with the seller.
- Close the sale. Assuming that the inspections are passed and all parties are happy with the condition of sale then you can close the sale. This will involve the completion of a large amount of paperwork, having the appraisal to ensure that the property is worth the amount being loaned, and paying all of the final purchasing costs.
Tips for New Homeowners
Save an “emergency” fund. Owning a home can often mean unexpected expenses. Putting some money aside each month will mean you are prepared if any emergency repairs or other costs arise.
Keep on top of maintenance. This often stops small and inexpensive jobs turning into large, time-consuming and costly ones!
Focus on making your house into your home one room at a time. It can be tempting to spend a lot of money revamping the whole house into your style as soon as you move in. However this can lead to debt or eating up valuable savings. Instead focus on one room at a time.
Don’t worry about the housing market. Many people who own a home worry unnecessarily about the value of their home. The housing market changes all the time and it really doesn’t matter what your house is worth unless you are planning on selling.