Purchasing your first home is a big step, which comes with some very serious decisions. Many homebuyers are intimidated by the process, and continue renting much longer than they should, or need to. However, if you break the home buying process down, you will find the process less intimidating, and much more manageable.
Tips for First Time Homebuyers
Before You Begin, Ask Yourself One Question
Will you live in your next home for at least 3 years? If the answer is “Yes,” you should probably purchase, rather than continue renting. With average appreciation, you’ll break even on your closing costs after 2 years, and start making money at year three. Every year after that will put more money in your pocket! The most expensive aspect of real estate is buying and selling, so the longer you can live in the home the better. However, purchasing makes sense if you can make as little as a 36 month commitment.
It always surprises me how many people want to purchase a home, but don’t because they believe that a hefty down payment is required. Zero down programs have been very common over the last few years, and quickly become the norm. If the option of 100% financing is not possible in your area, you can still get into a property with as little as 3-5% down.
Pre-qualification is a very important step, and the step that first time home buyers dread the most. Qualifying to buy a home is pretty easy and requires relatively little work for you. Pre-qualification is what gives you buying power and allows you to make an offer on your dream home when you’ve found it. More importantly, pre-qualification will let you know how much your new home will REALLY cost – in monthly payments. A $150,000 or $300,000 home doesn’t mean a lot to most buyers – but $1200 per month and $2500 per month are tangibles that everyone can understand. After your lender pre-qualifies you, ask them for a “payment table” that shows you a rough estimate of TOTAL monthly payment based on purchase price. Pick your payment, and you know the price range to shop in.
Consult a Real Estate Professional ASAP
Many first time home buyers avoid contacting a Real Estate Agent because they dislike high pressure sales. However, Real Estate Agents have an advantage over traditional salespeople because they have access to the Multiple Listing Service, which is a database that lists roughly 99% of the homes for sale in a given market. This means that your Real Estate Agent doesn’t have to sell – he/she merely presents your options. The most important qualities to look for in your Real Estate Agent are their knowledge of your specific market and their willingness to help. You’ll find the help & insight will be invaluable – and you’ll be glad you contacted your Real Estate Agent sooner, rather than later.
Make a List of “Must Haves” & “Wants”
Many new home buyers mistakenly think that they will “just know” when they “walk into the one.” While some buyers DO fall instantly in love with a home, this is not the norm. You’ll find your search is easier, and you will be more confident in your decision, if you take a systematic approach to your search. The best way to organize your search is to make two lists: Your “must haves” and your “wants.” Your “must haves” are the absolute necessities in your new home – in fact; you don’t even need to view a home if it doesn’t have every “must have.” Great examples of your “must haves” are price, school district, size, etc… Your “wants” are the qualities that you would like for your new home to have, but it’s not a necessity. Great examples of “wants” are color, flooring, kitchen appliances, surround sound, and type of exterior. By taking the time to articulate what you need and want in your new home, you will know exactly what to look for when viewing prospective homes.
Pick Your Favorite Neighborhoods
You can always make changes to your house, but you can never change its location. Most home buyers already have a good idea of where they would like to live because of school districts, work, or other factors. However, neighborhoods can be pretty different, even in the same area of the city. Ask your Real Estate Agent to email you a list of homes in the specific area of town you’re interested in. Take a drive through the different neighborhoods on the list your Real Estate Agent sends you, and choose your favorites. Pay attention to area amenities and how well the yards and common areas are kept. After you have picked your favorite neighborhoods, and you know your “must haves” and “wants,” you can literally make a list of EVERY home available that meets your criteria, and view those homes.
Make Your Decision
Homebuyers often hesitate after they’ve found the right home because they’re not confident about their decision, or their decision-making process. Your home is probably the largest investment of your life, and it’s normal to feel butterflies in your stomach before putting your first home under contract. However, if you do your due diligence – and you have if you followed the steps above – then you will have your bases covered. If you’ve found a home that meets all of your “must haves,” most of your “wants,” is in the right neighborhood, and in your budget – it’s the home for you! Don’t wait and let another buyer take your home!
Buying your first home can seem very intimidating, but can be extremely exciting. If you think that buying a home is right for you, it probably is. Make sure and follow these important tips and you’ll know you made the
right decision when you find your first home.
Mistakes to Avoid When Buying a Home
Not getting pre-qualified or pre-approved
If you receive pre-qualification or pre-approval from a reputable lender, your negotiating position is strengthened. It shows agents and sellers you are serious about buying a home.
Not seeking guidance from real estate professionals and inspectors
These people are trained in buying, selling and inspecting. Find someone you respect and trust and allow them to help – it will benefit you in the end.
Choosing an agent haphazardly
Don’t jump from agent to agent just because you saw their name on a sign outside of a house you like. Buyers should always have independent representation in the home buying process.
Not getting enough information about the properties
Obtain market statistics and sales records for the area you are considering buying a home in so you know how things (prices, conditions, list-to-selling price ratios) stack up in your neighborhood.
Not making the correct price comparison
Don’t assess the value of a house only on the asking price. Your real estate agent should compile reports that reflect and compare the selling price of similar houses recently sold.
Forgetting to calculate all the costs
When calculating the maximum price you can afford, don’t forget to include hidden costs, i.e. courier costs. Calculate a reasonable price range and look for a house that is priced closer to the lower end of your range.
Not asking enough questions
Don’t be afraid to ask questions! You’re not supposed to know everything about buying a home. Remember, this is potentially the biggest purchase you will make in your life – don’t get caught in a “lemon” because you didn’t ask enough questions!
Fear of losing a specific house
Don’t fall in love with the first home you see. New listings come onto the market all the time. The best deal may still be around the corner.
Not looking past the interior decorating or cosmetic improvements
Don’t choose a house because you like the interior decorating – that is not what you are buying and it will probably go with the seller when he moves. Check out the actual structure of the house!
Not checking out every nook and cranny before purchasing
Go through the house with a fine-tooth comb. You don’t want to find out after you’ve bought the house that the roof is leaking. Open cabinets, turn on every switch, notice details, move stuff away from the walls, look in the attic, turn on faucets.
Trying to make a shrewd investment
When buying a home, it is very important to make an investment that fits the needs of you and your family. You should not try to guess what will happen to the market. There are so many people that are trying to become real estate investors and property “flippers” from seeing different shows on TV. No matter what, every investment carries some type of
Choosing a poor location
Location matters. Even within every neighborhood and subdivision, there is a difference in location. Is it on the busiest street? Is there a shopping center out the back window? Is there a train track that you can hear going by? These are just a few examples that can cause a home not to sell as easily as similar homes in a same subdivision.
Overlooking an inferior floor plan for an attractive exterior
The home may have gorgeous curb appeal, but you will not be living on the lawn. No matter how attractive the exterior is, you need a home that is livable.
Overlooking how the house will function for your family
How do you really live? Do you really need a formal dining room and living room? Would you be happier with an eat-in kitchen and a great room and a den to use as a home office? The house only needs to fit one family…Yours.
Not having the home properly inspected
This is not the time for surprises. In the long run, it will pay to have a home inspection performed by a qualified, respected professional. You may be able to save yourself a lot of money and headaches by finding out about potential issues before purchasing a property.
Not getting what you want because you are impatient
This is an extremely big decision. You need time to review all the information and what is available. Impatient decisions can lead to mistakes. That is why it is always smart to work with a full time Real Estate agent who knows the intricate market.
Waiting for a better market / better interest rates
Warren Buffet says the rear view mirror is always clearer than the windshield. But, remember…If you wait too long , you might just pass up the perfect home for you. Even in a slower market, nice homes that are priced right will sell very fast.
A great way to make the home-buying process flow smoothly is to educate yourself and learn from mistakes others have made – this can make the difference between buying the home of your dreams and buying a “lemon.”