Navigating the world of home ownership can seem daunting for first-time buyers, but once you’ve determined that you’re financially ready to make this major investment, the rest is straightforward: get organized, make a plan and stay focused.
Follow these tips to find first-time home-buying success.
Clearly understanding how much house you can really afford is crucial to making a smart home-buying decision and will make your search for a house more efficient. Create a budget by listing your income, assets, debts and expenses to determine the highest monthly payment you can comfortably make.
Don’t forget the one-time costs that come with home ownership like paying movers, any needed repairs or updates to the home, new furnishings and more. And don’t forget those annual and monthly fees you may not consider: home owner’s association fees, neighborhood association fees, trash, landscaping and lawn, pest control, etc. Also, consider how much money you need in your budget to continue your savings and retirement plans, maintain your investment strategy, and build your emergency fund.
You’ll also have to make a down payment, which could be as high as 20 percent of the purchase price of your home.
Your budget will tell you what you can afford, but that’s not necessarily what a lender will loan you. In addition to your income and other debts, lenders will consider things like:
- If you consistently pay your bills on time.
- The market value of the home you want to buy.
- Your credit score and credit history.
Have this paperwork and these documents ready for a lender’s review:
- A valid I.D.
- Financial statements from the last six months.
- W-2 forms from the last two years and/or paycheck stubs.
- Copies of your federal tax returns for the previous year and possibly for the last two years.
- Lists of debts such as credit cards, student loans and statements showing payments and balances.
- Investment account statements and lists/proof of other assets.
It’s a good idea to get pre-qualified for a mortgage. With pre-approval you will know before you ever decide on a house if you’re eligible for the loan you’ll need to buy it. Getting pre-qualified has other benefits too:
- It lets realtors and home sellers know you are a serious buyer, and that could work to your advantage when negotiating the home’s price.
- It could help you close on a new house quicker, since most of the preliminary paperwork for the mortgage is already done.
Keep in mind that pre-qualification for a mortgage doesn’t mean you’re automatically approved for a mortgage. You’ll still have to go through the approval process when it comes time to buy a house.
Once you’ve got your price range, narrow down your choices even further by asking these questions.
- How many bedrooms and how much space do you need?
- Is storage space important?
- Is proximity to schools, work or other places important?
- What home style appeals to you?
- Are you willing/able to deal with a large yard or a home that requires more upkeep?
- Are neighborhood amenities important to you (pool, clubhouse, homeowners association, etc.)?
Once you’ve identified your priorities, you can start your search, and as you begin touring homes, consider these things while you’re there:
- Does it fit your and/or your family’s lifestyle? It’s easy to change paint colors, and pricier changes like new tile and other finishes can be done later, but if the floor-plan doesn’t work for the way you live, knocking out walls and rearranging rooms to make it right can quickly get expensive.
- Don’t expect perfection. It’s close to impossible to find a house that has everything you want, exactly as you want it, with nothing that you don’t. As long as you keep your main priorities in mind, you should be able to make a decision you can comfortably, happily live with — and in.
When you find your “perfect” house, it’s time to make an offer. Use these tips to get the most for your money.
- Do your homework. Before you throw out a number, find out the recent selling prices of other houses in the neighborhood and area.
- Have the home inspected. It’s crucial to know if major components of the house like the roof and the HVAC system are in good condition. The inspection process could open the door to further negotiations if repairs are needed.
- Don’t get attached. Try to leave your emotions out of the process, and don’t be afraid to walk away from a deal if the seller won’t sell at a reasonable price.
- Be flexible. Sometimes, problems found in the inspection are deal breakers if the seller won’t address them. But little things might not have to be repaired or redone. Consider looking past these if the other elements of the deal are right.