Things to Know When You Purchase Your First Home: A Step-by-Step Guide for First-Time Buyers
There are many emotions you can go through when you decide it’s time to purchase your first home.
You may be worried about your finances, paperwork, where to start, or what to expect.
Have I personally bought my first home? No, but I want to have something I can look back on as a guide when I do.
Learn what you need, the process, and who is involved below so that you can go into this next phase of your life with confidence.
Are You Ready to Buy Your First Home?
One of the things you have to do before you dive into buying a home is to understand your reasoning for buying one in the first place.
Here are a few things you can ask yourself.
Do I currently have consistent income?
Do I have money saved for future expenses that may be needed, like maintenance and repairs?
What area can I see myself in for 3-5 years?
Will I have enough funds saved beside the down payment to start paying on the mortgage?
Keep in mind that buying a home is a lot of responsibility. With that in mind, be prepared so that process goes smoothly for you.
What You Need Before Buying a Home
1. Financial Basics First-Time Homebuyers Should Know
Your Down Payment
A lot of times people take out a loan for their down payment if they are able to qualify for them. Sometimes, a person may use a program that doesn’t require a down payment.
One reason a person may not qualify for a loan approval is the credit score.
It is essential that you keep an eye on your credit because it can have a significant impact on how much you receive and the interest rate you’ll typically pay.
Before you even consider getting a loan to purchase a home, take into account how many loans you have that you haven’t paid off.
Additionally, lenders look at how much you owe and your income.
Having loans on top of other loans is a cycle that needs to break.
Get on track and learn the importance of having savings. There are incidentals that may occur after you close on a home.
2.Documents You’ll Likely Need
Bring in documents that show you have been making income. Typically, you’ll want to bring in your W-2s, pay stubs, government identification, proof that you are employed, and bank statements.
However, what do you bring in if you aren’t employed?
Give lenders proof of your bank account, 1099 forms, taxes, and other income.
Anything that shows you are capable of making a payment. Get this ready so things can make the process go a lot quicker.
3. Pre-Approval vs. Pre-Qualification
Pre-qualification lets you know the estimated loan you’ll receive on a self-report, aka evaluation. Think of this as a roadmap or starting map to what lenders plan to give you.
Pre-approval can seem more intense because this requires verification. If you have this, it gives off to lenders that you mean business, helps you set a budget that works within your means, and can strengthen your offer on a house.
Keep in mind buying a house can get competitive depending on the area.
The Home Buying Process: Step by Step
Step 1: Get Pre-Approved for a Mortgage
Sit down and choose a lender. Compare the loan options and figure out the price range you want to spend for your first home.
Step 2: Hire a Real Estate Agent
Do your homework.
When it comes to finding a real estate agent that is able to listen to your needs in a home, that knows how to negotiate, details of contracts, and saves you in the long run.
The person who is selling the home often covers the cost of the agent.
Step 3: Start House Hunting
Write down your must-haves. This will give you an overview of your known negotiables.
Understand the resale value.
For instance, a home may very well have one room but have the space for a second one. You may want to buy that home and upgrade it to make it feel like the dream home you always envisioned.
Take your time and trust your intuition.
Step 4: Make an Offer
Based on your tour of the home, if you feel that the home is for you, it is time to make an offer.
What do you think is a reasonable price for the home?
When you put in the offer, there are a couple of things that could happen. The seller could come back with a counter, other people could have already bid on the home, or the offer could be accepted.
Make sure you are able to negotiate for those contingencies, like inspections and more.
Trust the process.
Step 5: Home Inspection & Appraisal
It is essential that you have the home inspected. The inspection process allows you to get an overview of the potential issues that can arise. Do not skip out on this.
Furthermore, make sure you have an appraiser to confirm the value of the property.
Knowing this information can help renegotiate.
Step 6: Loan Underwriting & Final Approval
When you have a lender, it is essential you do not have a lot of things going on. For instance, you don’t want a career change, have a huge amount for large purchases, and decide to open credit accounts.
All this lets the lender know that things aren’t consistent. In their eyes, it’s like you have the potential to not make your payments on time.
Step 7: Closing Day
When it is closing day, think of it as a final win day.
You finally can put your name on the signature, pay the closing costs, and receive your key to your official place you can call home.🎉
People You’ll Work With When Buying a Home
Real estate agent: The guide to the home of your dreams
Mortgage Lender: The company that manages your loan
Home Inspector: Think of them as the investigator for the home.
Appraiser: Evaluates the market value of the property
Title or escrow company: Makes sure the ownership transfer is handled properly
Real estate attorney: In some states it is required.
Hidden Costs First-Time Buyers Often Overlook
It is crucial that you have the funds for:
Closing costs—Typically it is 2 to 5% of the purchase price.
Property taxes and homeowners insurance- Check around to see how much the rates are for that state and area you decide to reside in.
Home Owners Association (HOA) fees—some subdivisions require a certain amount each year to make sure everything is up to date in the neighborhood.
Maintenance and repairs- Think of this as an emergency fund for incidentals.
Tools and resources—unloading furniture, buying furniture like a mattress to sleep on your first night, utilities, etc…
Preparing and saving before you purchase a home can go a long way.
What to Expect Emotionally as a First-Time Homebuyer
There are a variety of emotions that can arise when you go through the process. The key is to pace yourself.
Take it all in and know that you are capable of choosing what’s right for you.
First-Time Homebuyer Programs and Loan Options
Some of the loans buyers qualify for are FHA loans, USDA loans in rural areas, VA loans if you are an eligible veteran, and state and local assistance programs for down payments.
Find what makes homeownership more accessible.
Common First-Time Homebuyer Mistakes to Avoid
Understand that your budget has to work for you, not against you. The last thing you want to do is to drain out your savings and owe more than you can afford. At the end of the day, you still have bills and other payments to factor in.
This is your first home; sometimes it’s not your forever home. Figure out the resale value. Determine the updates you made to the home, time of year, etc…
Life After You Buy Your First Home
There is a major exhale moment when you buy your first home because it’s a relief that you were able to get it done.
You learn how to build equity, how your home operates, and how to figure out financial stability.
Final Thoughts
I believe there are a lot of moments in your life where you enter a new chapter. When you buy your first home, it can feel like a new chapter with a lot of emotions. But there’s no need to get scared because you are capable of figuring out how to handle that responsibility.
All you have to do is to be prepared, surround yourself with a support system that makes the process go smoothly, and look back at this post, which will remind you what’s important.
You are capable of making your dreams a reality.
