9 Crucial Tips to Buy Your First Home

Buying your first home can be a daunting task. The paperwork, the budgeting considerations, the inspection reports – it’s enough to make even the most seasoned adult feel like a rookie.

In this post, we’ll teach you how to buy your first home so you can purchase your first home with confidence and excitement.

With these smart tips and some necessary homework before beginning your search for “the one,” you’ll soon have keys in hand ready to enjoy all the joys (and challenges) of owning property!

You can also download our FREE Monthly Budget Worksheet to start planning your home purchase today.

Buying your first home is considered one of the biggest milestones, both in life and in regard to your finances. It’s a big commitment, and there’s a good chance this will be the largest purchase you’ve made to date.

As you prepare, here are the steps to follow as you purchase your first home.

Decide if You’re Prepared to Buy Your First Home

Before you buy your first home, make sure that you’re prepared for unexpected costs like utilities, repairs, and monthly garbage bills. Homeownership is more expensive than renting an apartment or house since you are responsible for additional fees.

Home-related costs such as taxes and insurance can quickly become expensive, and if you don’t have a plan for how to pay them, you could find yourself in difficult financial circumstances—especially if your family relies on a single income.

Having an emergency fund is not the only way to prepare for a mortgage. You should also consider reducing or eliminating your debt. Lenders use something called your debt-to-income ratio to determine how much of your income goes towards repaying debts each month. This helps them figure out how much of a mortgage you can handle.

Save up for your home by making a budget of what you expect your mortgage payment to be, and put the extra money in savings. This will not only boost your confidence but also give you a real head start when purchasing a home.

Shop for a Loan

Most people need a loan to finance their home purchase. In fact, in many cases it makes more sense to get preapproved for a mortgage before you even start shopping for your dream home. By doing so, you can have an idea of how much you can afford and rule out any homes that are too expensive from the outset.

If you want more mortgage options, consider using a broker. With a broker, you have access to several different loan companies and programs, which can help you find the best rates. However, your small local bank or credit union may have options that save you money too.

Determine which Payment Option and Loan Type is Best for You

You may not know it, but there are a variety of loan types and payment options available for your mortgage. Don’t let big words like private mortgage insurance (PMI) intimidate you. A bit of investigation can help clear things up so you can move forward confidently.

Some buyers choose a 15- or 20-year loan because they feel more comfortable with the shorter term, and they might be able to lock in a low rate. On the other hand, longer-term loans usually mean a lower monthly payment. With a longer-term mortgage rate, you likely have a higher interest rate, but the lower monthly payments make the loan more manageable.

Adjustable-rate vs. fixed-rate mortgages

An adjustable-rate mortgage, or ARM, has a variable interest rate that can change over time. The initial rate is lower than fixed rates, but your monthly payments could increase if market conditions alter and the rate rises.

A fixed-rate mortgage, on the other hand, always stays the same, no matter what is going on in the economy or stock market. Having a fixed-rate mortgage provides stability for your monthly payments and makes budgeting easier. However, you could end up paying more if interest rates fall. If rates do falls, it’s possible to refinance to get a lower rate and save money.

Watch out for hybrid mortgage products that offer a low, fixed rate for the first few years but then switch to a higher variable rate. You could end up with a larger payment than you expected.

Have a down payment saved up before you start home shopping.

Your down payment can reduce what you owe and also reduce your costs. Remember that if you don’t put down at least 20% of the cost of your home, you’ll most likely have to pay private mortgage insurance (PMI). You don’t need 20% for a down payment to succeed as a homeowner, but you should factor in the cost of PMI when making your purchase.

When you don’t have the full amount for a down payment, you may be enticed by creative financing options. However, it’s important to be mindful of the risks before making this decision. If you want to build wealth with your home purchase, then you need to be sure that you make the right choice. Otherwise, you may end up hurting yourself financially.

Be Honest About What You Can Afford

It is essential to be realistic about how much you can spend on a home. A good guideline to follow is making sure that your mortgage, taxes, and insurance don’t exceed 30% of your earnings. Many experts recommend that your home cost no more than two and a half times your annual salary.

If you have a large mortgage, daily expenses become harder to pay, not to mention retirement savings. If you’re drowning in debt (credit card or student loan), a smaller house might be worth the monthly financial peace of mind.

Find a Good Realtor

After you’ve figured out your budget and are preapproved for a mortgage, it’s essential to find an excellent real estate agent.

Throughout your journey of finding a home that’s right for you, your agent should be by your side every step of the way while also being aware of what you desire and require in a home. With extensive knowledge of the market, they will be your advisor to find a home that meets both your needs and budget.

After you make an initial offer, your real estate agent will enter into negotiations to try and get terms that are agreeable to you. Additionally, they can help guide you through the paperwork needed to successfully close on a property.

Schedule an inspection

A home inspection is crucial after you’ve found your dream home. You will need to front the cost for the inspection, but it will be worth it when the inspector looks for potential issues that could arise in the future.

A home inspection can disclose any problems that could stop you from purchasing the house. By ordering a home inspection, you could avoid expensive Mold removal, termite treatment, foundation repairs or an entirely new roof. Home inspections offer protection against these common (and costly) problems so that you can buy your home with peace of mind.

Be Patient During Escrow

After you bid on your home and the offer is accepted, you’ll enter into escrow. Here, an escrow holder will oversee all of the preparations before closing–including ensuring that documents, money, and other pertinent information are ready. Escrow is set up as a precaution for all those involved in the sale, including the buyer, seller, and lender. Its completion time varies based on many different elements but giving yourself three to five weeks before the closing date is not unheard of.

Close and Move-In

On the day of the closing, you will sign all final paperwork and show up to witness it. When this is completed, the escrow agent will then release funds to those involved.

After you have finalized the purchase of your home, it is time to move in and make it your own. You can paint the walls, unpack your belongings, and enjoy your new space.

So there you have it! Our top tips for how to buy your first home. This is such an exciting time in your life, and we hope our advice has helped to set you on the right path. Remember, take your time, do your research, and don’t be afraid to ask for help when you need it.

And last but not least, don’t forget to download our FREE Monthly Budget Worksheet to help you plan for this big purchase. Buying a home is a huge financial commitment, but we know you can do it!