As a first time home buyer, it’s not uncommon to be overwhelmed by the whole process.
Purchasing a home involves a lot of steps. Looking for a home and getting a mortgage is only one element of it. Knowing how much to put down, what a good mortgage looks like, and if you should buy or build a home are all reasonable questions you might have.
Fortunately, this list of tips will help ease your anxiety and get the ball rolling on your journey to buying a new home.
We hope they help!
Start Saving Early
For most, buying the first home is a marathon, not a sprint. In fact, it starts months before when you decide to start squirreling away money for a down payment.
Generally speaking, most first time home buyers put 20 percent down on their home. So if a home costs $250,000, they’d put roughly $50,000 down right off the bat.
Putting down at least some money is a great idea if you can. It gives you a wider mortgage selection, reduces your monthly payments, and could even qualify you for lower interest rates.
However, in certain cases, first time home buyers can qualify for loans that only require as little as 3 percent down. See what offers your state or area has for first time buyers or talk to banks and shop around for deals.
Take a Breath
Being a first time home buyer can be overwhelming and stressful. Many have navigated these waters before and found a home that fits their needs and budget. Trust that you’ll be able to do the same!
In particular, patience is a virtue when buying your first home. Don’t feel compelled to buy one home because it feels perfect, your family is pressuring you, or because your friends just purchased their first house. It isn’t a race!
Rushing to buy often leads to impulse purchases and spending outside your means. It might feel good to sign on the dotted line, but the last thing you want to do is buy a home you can’t afford.
So many real estate decisions can be avoided simply by taking a breath and being patient.
Evaluate Your Needs
It’s a question all first time home buyers have to ask. What are you looking for in a home?
Buying your first home is an investment in your (and potentially your partner’s) future. So first and foremost, you should determine what that future looks like. That will help you decide the type of home you’re going to buy.
Do you have children? Are you planning to have kids in the future? Are you considering renting out an extra bedroom or doing Airbnb to lower your mortgage?
Other questions to ask yourself include:
- Which state or area you’d like to buy-in
- What type of neighborhood you would like to live in
- How big of a yard you want
- If you’re looking to buy or build (more below)
- If you’re willing to do upgrades
All these questions matter when it comes to making the right decision.
Should You Build or Buy Your First Home?
This is a question many first time home buyers ask. Buying vs building a home is a different process entirely, and both come with advantages.
Here are some pros to help you decide what’s right for you:
Pros of Building a Home
There are many advantages to building your own home.
Namely, you’re starting from scratch and you get to build exactly what you want. Builders work with you to design a home that fits your needs and budget. Before a nail is ever hammered into a board, you have a say over what your home will look like.
Building a home can also streamline the process. You’re likely working with a team of developers or a group of people also building. So you’ll have access to resources and community that you might not otherwise get.
Finally, you can utilize today’s resources in building your home. For example, you may be able to save money by installing green features that aren’t available on older, already existing models.
Pros of Buying a Home
There are also some advantages to buying an already-built home.
Buying a home is usually much cheaper on the front end. Building costs more to get the development started. So if you’re looking to put less down and finance a bigger mortgage, this could be the way to go.
Buying an existing home also offers clarity and insights into the area. There is existing data about the neighborhood, the school systems, and the amenities in the home.
You may not have total control over how everything looks, but you can get a better feel for what you’re purchasing. After all, it’s right there in front of you!
Should You Work With a Real Estate Agent?
The short answer is no, although there may be circumstances that make working with a realtor when buying your first home a good idea.
The main drawback for first time home buyers is the realtor’s fee. Typically, the seller pays the realtor fee. It’s subtracted as a percentage from the value of the sale.
However, closing costs may come into play. They can be as much as 6 percent of the transaction. Sometimes they are split fifty-fifty with the seller, but that can still mean you pay a lot out-of-pocket on top of your down payment.
But realtors do offer many benefits. They typically know the area you’re looking to buy, help you identify what to look for in your price range, and match you with homes that fit your needs. You pay for their service, but if you don’t want to go it alone, it might be a good investment.
Research Home-Buying Programs
Many states offer grants and loans for first-time homebuyers. The state or county wants to incentivize young people to stay in the area and help build a community. In return, you can get favorable rates on buying or building a home.
Generally speaking, these deals come with specific terms. A 5 percent or more down payment is required and all owners must be first-time buyers. In some situations, you might not qualify if you make too much money.
Look into your state or county’s first time home buying options.
Explore Your Financial Options
Unless you’re planning to buy the whole thing with cash, you’ll need to explore your financing options. The good news is, many banks offer some pretty attractive deals for buying and building homes to first-time buyers.
To get the best deal, you’ll need to shop around. A bank may lower the interest rate they offer you simply because you show them a lower interest rate from a competitor.
They need you to do business with them just as much as you need a loan—so don’t feel like you have to be desperate when undergoing this process.
In the end, your goal should be to find a monthly mortgage payment you’re comfortable with. Aim for the lowest APR financing you can get. A good credit score will help you get a low-interest rate.
(More good news: rates haven’t been lower in a long time than they are right now.)
Across the board, Americans average about a 43 percent debt-to-income ratio. This is higher than the ideal range of about 30 percent.
There’s a lot to the home buying experience. Once you’ve identified a home and found a good deal, the job isn’t done. There are additional steps you may or may not take depending on your situation.
For example, you might want to hire a home inspector. Out of pocket, they can cost a couple hundred to a thousand dollars. But they’ll let you know how much the home is worth and if there is any serious work that needs to be done.
Shop around for home insurance rates as well. And if you know the home will need some repairs, get estimates from local companies.
Being a First-Time Home Buyer
As a first-time home buyer, there’s a lot to consider and do when you finally decide it’s time to purchase a house.
If you’re still beginning the process, start by going to a few open houses. Consider heading to the bank to see what you might qualify for on an imaginary house that’s in your budget. And see how much money you can scrape together to help make a dent in the principle you’ll otherwise put into a mortgage.
The good news is buying or building your first home is doable. It can be overwhelming, but we promise you’ll look back fondly on it someday.
Learn more about the top home builders in your area so you can build the first home of your dreams. We wish you the best of luck!