The process of buying a home is very emotional. That can lead to bad decisions that rely more on feeling than practicality. HGTV makes the process seem so glamorous that we can get more focused on finding our “dream home” than finding a home that meets our needs that we can actually afford. This is even more problematic for a first time home buyer. So here is a list of things to make sure you do when buying a home for the first time. It is intentionally brief because each of these sections links to posts which go into greater detail about their respective subjects.
Live on a Budget
Ideally you should be living on a budget for 3-6 months before considering purchasing a home.
Pursuing home ownership does not make sense for someone who is not living on a budget. Owning a home is expensive. Often it can be a good investment, but if your finances are not in order it can swallow you whole. Before you even begin planning to buy a home, do yourself a favor and get your personal finances figured out. Write out a budget that you go over and reevaluate every month. Do that for at least six months. This will allow you to be best prepared when the time comes to make that purchase. For more information about the budget process go here.
Save for Your Purchase
Saving for a down payment and other home purchase costs is critical to the home buying process. Before you can buy a house you will have to save diligently, and probably more than you would expect. The best plan is to expect to put down 20% of the home’s cost. Some loans may even require it in order to qualify. Keep in mind that this money should be separate from your emergency fund. Buying a house is not an emergency, no matter how much you want it! For more information on how to start that saving process and become ready, check out our blog post here.
Saving is the first part of the home buying process.
Planning for the Cost of Home Ownership
Not accurately factoring in your utility costs can make for an unpleasant surprise.
Not only is the up-front cost of purchasing a home higher than renting, the regular cost of ownership is generally higher also. It’s important when planning to buy a home that you understand the additional costs above and beyond your mortgage payment. You may experience higher insurance, utilities, HOA fees, and regular maintenance costs you may not be accounting for in your budget. These are largely just part of the home ownership package, but having an accurate picture before you buy is an absolute must.
To learn more about some of those costs go here.
Shopping for Loans and Lenders
The purchase of your first home is very likely the biggest financial decision you have ever made. Your loan and lender will be something that impacts you for many years to come, so choosing the best of both is critical. There are a number of questions that are important to ask a prospective lender. For example: Can you estimate and explain your fees? Are you going to hold the loan or sell it? How will this rate change over the life of the loan? These questions and more are important to determine that you fully understand and are happy with the loan decision and the lender.
It is important to look at several lenders and ask them lots of questions before settling on one.
Selecting a Real Estate Agent
Selecting the right Real Estate Agent is critical and can really smooth out the home buying process.
Just like selecting your lender, choosing a real estate agent can be a huge help, or a weight dragging you down in the process of purchasing your first home. You want your real estate agent to advocate for you and get you the best fit and best deal possible. You are in unfamiliar territory and having an expert there to guide you makes all the difference in the world. Just like with lenders you will want to talk with several, and as with lenders, you will want several questions answered. For example: How will you search for my new home? Do you present offers yourself? How do you handle multiple offers? You will also want to know that they are trustworthy, knowledgeable, and might even wish to see references. The bottom line is, you need to be able to rely on them as a benefit in this process, so interview them with that in mind.
Looking at Several Homes
It is a good idea to look at several homes before settling on anything. You might find a house that you absolutely love your first time out. However, if you only look at one, you might miss out on an even better fit for your needs. If you have chosen a good real estate agent they will likely advise you of this as well. Seeing a variety of homes gives you a good basis for comparison, even if you still go with your initial choice. Remember, buying a house is a long-term investment. If you cannot see a house fulfilling your needs in a couple years, you may need to consider something different.
It is a good idea to look at several homes before deciding on one.
Getting an Inspection
Having a professional home inspection done before closing is a must.
Home inspections can be something that takes place in phases. I recommend bringing someone along with you who you trust and who will be honest with you when you view a home you are strongly considering. This is not a good substitute for a legitimate home inspection, however. Many loans may require that you have an inspection, and whether your loan does or not, you should definitely have one done. It costs a little money but might save you a fortune in the long run, and is not a good place to cut costs in the home buying process. Often your real estate agent can recommend someone for that purpose.
Making an Offer
This can be the most intimidating part of the home buying process. For most first time home buyers determining how much to offer, how to negotiate, and what prices are fair can be very difficult. Your real estate agent should be absolutely invaluable to this part of the home buying process. Unlike most first time home buyers, real estate agents are experienced in answering your questions about the buying process while trying to navigate you through this step. They will use comparable sales near you to give you a good idea of what you should expect to pay and help you formulate your offer. It is important to remember during the negotiating portion that this is an emotional thing. Just like you have emotions attached to buying a home, the seller likely has similar emotions about what they expect to get in return. Your negotiation goal should not be to “win” but to get the best and most fair deal for both parties.
When you make an offer on a home, you have to rely on your real estate agent. That is why hiring the right one is so critical.
Getting Insured
Homeowner’s insurance is confusing and making sure you have enough and that it covers the things you want it to is something you want to be sure of.
When you decided to buy a home you probably didn’t think you’d be doing so much research right? Well, guess what? This step means more of the same! Choosing homeowner’s insurance is an important part of the process of buying a home. Depending on the home, the area you buy in, and a number of other factors, prices can vary greatly. That might impact a buying decision for you and certainly deserves consideration when in the process of purchasing. It is a good idea to talk to several insurance companies to get an idea of what you should expect to pay as well as what kind of coverage is important for the house you are looking at purchasing.
Closing
The close date is when you actually sign all the paperwork and usually, take possession of your new house. The deadline for getting all paperwork signed, documents submitted, insurance taken care of, and all other bases covered is at closing. If possible, get all questions answered before closing to prevent any delays or last minute problems. You will be signing lots of papers at closing, and it is critically important to read them all. It is easy to just sign away without investing the energy to read everything, but you are committing to a major investment and doing so without fully understanding all aspects
Closing can be exciting and intimidating. You will sign your name more than you probably ever have, but don’t forget to read what you sign!