Want To Know About Home Buying
Published on: January 4, 2025
Important Things to Consider for First-Time Home Buyers
There is nothing better than the feeling of buying a new home. The excitement intensifies if you are a first-time home buyer. Where buying your first home is a major milestone in fulfilling your American dream, it is equally important to be prepared before you make your purchase.
Studies have shown that 64% of millennials have regrets related to their current purchases. You don’t want to drown in buyer’s remorse, right? Here are some important tips and mistakes to avoid for first-time home buyers.
5 Things You Should Know Before Buying a Home
1. Know When You Are Ready
If you are a first-time home buyer, just make sure you are good to go for the long-term commitment. Consider factors like your future plans (e.g., starting a family or moving).
Then, review your finances, including income and savings, for a down payment. Check your credit score, as lenders use it to set mortgage rates. A score of 620 or higher is usually required for a conventional mortgage. The better the credit score, the higher the chances of scoring a good deal—less markup.
Also, calculate your debt-to-income ratio (DTI). The FHA recommends a DTI of 43%, which helps determine how much you can afford.
2. Define Your Budget
It would be unwise to buy a house beyond your means. For starters, follow the 28/36 rule: your mortgage should be no more than 28% of your gross income, and total debt payments should not exceed 36%. While this is just a guideline, it can help you set a budget. Also, look into home prices in your area to understand the market.
Mortgage is another important factor to consider when setting your budget. Most mortgages require a down payment. For example, conventional loans need 20% and FHA loans 3.5% as a down payment, while USDA loans don’t require any down payment. The good news is that First-time buyers typically pay 6-7% as a down payment, depending on the area.
3. Choose the Right Realtor
Right, this one is of top priority—the right realtor. Selecting a realtor who understands your needs is essential. A good agent listens carefully, respects your preferences, and guides you without stressing you.
It is important to feel comfortable with your realtor since this is a major life decision. The right professional will ensure your priorities are met and act in your best interest. Make sure to work with someone you trust, as you will be spending a lot of time together throughout the home-buying process.
4. Practice Self-education
Buying a home is indeed one of the biggest decisions in your life, and everybody is going to offer advice. However, it is important to make the decision based on your own comfort and understanding, not outside opinions.
Therefore, before you seek advice from friends or family, take time to learn about the process. Research topics like mortgages, property values, and market trends. This knowledge will help you evaluate advice more effectively.
There are a bunch of free resources available for self-education. For example, you can seek guidance from the National Association of Realtors Buyer’s Guide and the U.S. Department of Housing and Urban Development. Educating yourself ensures a more confident decision-making process.
5. Consider Hidden costs
Many people may warn you about unexpected costs. However, reality hits when you make payments to services like exterminators, carpet cleaners, landscapers, and plumbers. The list of expenses keeps growing, even after you buy the house.
It is true that after such a massive investment, it can be difficult to think about saving. However, it is important to set aside money for future repairs. Unexpected issues, such as broken heating systems or leaking roofs, can arise, often at inconvenient times like holidays or vacations. Being prepared for these costs is crucial.
Common Mistakes First-Time Home Buyers Make
When there is a blend of excitement and confusion, possibilities of mistakes increase. Here are some common mistakes home buyers make.
a. Making Emotional Decisions
Home buying can be emotional as it is filled with excitement, hope, and frustration. However, it is important to make decisions based on your financial situation, not emotions. If a home excites you, don’t buy it just because it makes you happy.
Make sure it fits your budget and that you can afford the payments. Similarly, avoid rushing into a purchase out of desperation. If you have been house-hunting for a while and have not found the right one, remain patient. Wait for a home that fits your budget and needs.
b. Searching for the Perfect Home
It is common to have a list of must-haves for your dream home. However, it is unrealistic to find a home that meets every single requirement. Yes, a home may meet most of your needs, but not all of them.
If you are looking for perfection, the process may take longer, or you might end up paying more for a home just to meet your expectations. Therefore, stay flexible with some of your criteria and be open-minded. This will help you find a good property without missing out on great options.
c. Not Considering the Neighborhood
Many buyers focus too much on the house and forget to consider the neighborhood. It is important to think about aspects like safety, schools, access to nearby markets, and walkability. Also, consider the commute to work or other daily activities. A great house in a poor neighborhood may not be the right choice. Always research the area before making a decision.
d. Shopping Without Getting Pre-approval
In competitive housing markets, sellers prefer buyers with pre-approval letters from lenders. This letter confirms that you can afford the home based on your financial situation. It shows the seller that you are a serious buyer and helps speed up the process. Make sure you have this letter before starting your search.
e. Not Shopping Around for the Best Mortgage
Always compare mortgage offers from different lenders to save money. Look at interest rates, fees, and closing costs.
Even small rate differences can add up over time. Some lenders may offer discounts or low closing costs but watch out for higher rates.
Consider using a mortgage broker or checking with banks and credit unions to find the best deal.
Summing it up
First things first, do not let your emotions cloud your judgment. Understand the difference between a good purchase and a perfect purchase (which is just imaginary). Apart from that, it is important to be crystal clear about your budget and expectations and choose the right realtor.