You’re ready to take the plunge and buy a home, but if it’s your first time, it can be a confusing process. Here are some crucial things to know before buying your first home.
A real estate transaction has a lot of moving parts. Your first step should always be to get pre-approved with a reputable mortgage lender. This way, you’ll know what price range to look in and will avoid wasting time looking at homes that won’t work with your finances.
Finding a real estate agent that you trust should be next. If you don’t have an agent you trust in your network, asking friends and family is a great way to find someone who will take good care of you. When you’re on the hunt, pay attention to what people say about how they communicate, negotiate, follow up, and how professional they are. Meeting in person is a good idea before signing a representation contract; sometimes you just don’t click with certain personalities and that’s okay.
It’s now time to start going on showings. Your agent can and should set you up for a search that alerts you when new homes hit the market. When you find homes you want to see, your agent will set up showings and accompany you when you tour them. Depending on how busy the market is, you can expect to see other buyers viewing the property at the same time.
Once you’ve seen the property and have decided it fits your wants and needs (more on those later), it’s time to write an offer. Your agent will help you determine the best price and terms, but it’s important to know that the price, terms, and timelines are always your choice. Your agent’s job is to educate you so that you can make an informed decision.
The amount of behind-the-scenes work begins after this point, so I’ll spare you the details. Just know that your real estate agent, your lender, and many other entities are working very hard to make this transition happen for you.
Wants vs. needs
Establishing the difference between your wants and needs when searching for the right home will save you a lot of time and aggravation. ‘Needs’ are things that are completely non-negotiable in your mind. These will be different for everyone; for example, if you have a disabled family member, a handicap-accessible home would likely be a need.
‘Wants’ are things that you’d really like to have, but are not deal breakers. These are a personal preference and completely dependent on your lifestyle. When you’re trying to determine whether something is a want or a need, think about how you live in your home now. If there are things missing that are the reason you’re moving, they’re probably more of needs than wants.
Prioritize your pre-approval
There are many reasons to handle your pre-approval early in the homebuying process. First off, you’ll establish a price range to stick with before you start your home search. This prevents wasting time searching for and seeing homes you cannot afford.
The second reason to do this early is because you’ll need pre-approval to be taken seriously in any seller’s eyes. When you submit an offer on a property, your pre-approval will need to accompany that offer. No need to stall the negotiation process by not being prepared, especially in a fast market when you may be competing with other buyers for the same house.
Know your budget
This may sound like I’m repeating myself, but there’s a big difference between what you’re pre-approved for and what your budget is. The number that your lender gives you will most likely surprise you. After you’ve been pre-approved, take those monthly payments and plug them into your desired budget. Can you maintain your current lifestyle or would your mortgage make you “house poor”? This step is very important, and is often overlooked.
Speaking of your budget, owning a home comes with expenses that you may not be used to if you’ve been renting. Think about property taxes, mortgage, and homeowners insurance, not to mention appliances, furnishings, and other items to fill your new home.
An upfront cost that sometimes comes as a surprise to first-time homebuyers is closing costs. The amount varies but typically hovers around three percent of the sales price. This is an expense that can be covered in a variety of ways. Sometimes buyers will cover these costs out of pocket, combining it with their down payment at closing. Increasing the sale price by the amount of closing costs and essentially rolling it into your mortgage is also an option. The third option is to ask the sellers to pay. There are limits to how much a seller can contribute to your closing costs, so consult with your agent and mortgage lender.