Home, they say, is a haven and comfort zone where you can build memories and future wealth. Many people dream of the day they will be able to buy their first home, but they do not dream of the steps required to make their dream come true.
The purchase of a home can be a complicated and daunting process, especially if you’re a first-time buyer. However, there’s good news for you; Buying your first home does not have to be scary, if you take it one step at a time.
On that note, this article contains a complete step-by-step process that will walk you through how to buy your first home.
The Complete Guide to Buying Your First Home
Know Your Budget
Before you commence the search for your home sweet home, you need to have a solid idea of the amount you will be spending. Process the numbers as soon as you can so you know how much you need to save up and how long it will take to arrive at that amount.
There are certain costs you need to put into the planning process of your first home purchase:
Downpayment
Your downpayment is the biggest expense you need to save up for. It is a percentage of the home’s purchase price that you are expected to pay upfront so as to get a home loan. Although people aim to save up a 20% down payment, the type of lender, home, and mortgage you choose will affect how large your down payment will be.
Furthermore, there are conventional loans available for first-time home buyers with good credit that gives room for down payments as low as 3%. Hence, don’t allow the idea of a 20% downpayment to restrict you. Check and see if you are eligible for programs like the Home Guarantee Scheme in Australia, which can help lower the amount needed for a down payment!
Closing Costs
When you are finally getting to close on a home, be ready to pay. Closing costs are expenses and fees you are expected to pay when you get close to the purchase of a home. Closing costs are usually paid to the mortgage lender by the buyer, but the seller will also need to pay some closing costs as commission to the real estate agents.
Generally, you spend about 2%-5% of the loan on closing costs. Sometimes, the seller pays a part of the closing costs or covers the cost of inspections. So, you can choose to negotiate either option during your contract. But in the meantime, prepare for the full payment by saving up to also pay the expected closing costs.
Move-in Expenses
You should have some money to pay for your move, whether you’re moving down the street or across the country. Upon getting to your new home, you may also need to have some money set aside to cover the cost of repairs, furniture, and appliances.
Review Your Financing Options
Another thing you need to consider is different financing options, except you can afford to buy a home with an all-cash offer. To find the right financing option for you, there are some steps to take:
Review Your Credit Report
Before you consider applying for a mortgage loan, take some time with your credit score. When you apply for a mortgage, your credit score will determine if you qualify, how much you qualify for, and your interest rate.
However, if your credit score is low, there are ways to improve it, such as paying your bills early, keeping your credit card balances low, and paying off your debts.
Explore Your Mortgage Options
There are some types of mortgages in the market which are worth researching, to determine the type of mortgage that will be best for you. Those types include conventional mortgages and FHA loans, amongst others.
Mortgage Pre-Approval
Mortgage pre-approval is a letter that proves that you’ve been tentatively approved to borrow a particular amount of money. It doesn’t assure financing, however, because all pre approvals are subject to verification.
Choose the Right Real Estate Agent
Concerning choosing the right real estate agent to work with, you can get referrals from previous (or recent) buyers. You can also run an interview with multiple agents to ensure they are experienced, have a communication style that works perfectly for you, and is a good match for your needs.
Do not be scared to ask the seemingly tough questions. Make sure you take your time during this stage because if you have the right real estate agent with you, you will find the entire process of home buying less stressful.
Choose the Right Home
After finding a good real estate agent to work with, you will have a guide whose job is to get the right home for you and accompany you to open houses. When you visit an open house, keep an eye out for unusual noises and odors. You should take a close look at the outside of the home as well, to have an idea of the condition of the full home.
Although real estate agents are helpful, you should also research on your end. Visit different neighborhoods to know which community is perfect for you, whether a city or a suburb. Moreover, consider if factors like homeowners association dues are applicable since they will affect your monthly budget.
In addition, weigh the pros and cons of single-family homes, condominiums, and townhouses. All those home types have their merits, but which one is best depends on the one that can meet your personal and financial needs.
The Closing Process
Once you find the right home for you, make an offer by working with your real estate agent to determine how much to offer for the home and the kind of contingency you would like to add or waive. Then your real estate agent will present your offer to the seller’s agent. This process may take some time to work, or one party ending the negotiations and walking away.
Once an agreement is reached, you should schedule an inspection and appraisal to further understand the condition of the home and its value. The inspection will give you an idea if any problem exists in the home, while the appraisal will determine how much the mortgage lender will lend you.
After inspection and purchase of private mortgage insurance (PMI), you can move on to closing, where you sign a lot of paperwork and pay your closing costs. Afterward, the home is yours.
Negotiation
Another reason to get a good real estate agent is that they can help to navigate the tricky negotiation process with the seller. Your negotiation power will depend on if you are on a seller’s market. Therefore, you should master the art of negotiation. Generally, the negotiation process should start after making an offer on the home.
By following the steps that have been explained above, you will realize you are buying your home with confidence.
