How to Buy Your First Home The Complete Guide

Buying your first home can seem like a daunting task, but it doesn’t have to be. If you approach this exciting journey well prepared and knowing what best suits your lifestyle, needs, and budget it can be extremely rewarding. This home buying guide will show you how to get started on buying your first home – from making sense of some of the acronyms and percentages to breaking down the major steps to guide you along the way.

Beginner’s Guide To Buying Your First Home

Is Home Ownership Right For You?

Buying your first home is a huge step, and likely one of the biggest financial steps you will take. People begin to consider this option for many reasons, but not all of them are necessarily good reasons to buy your first home. Owning a home is more than just trading your current rental for a place you own. It is an investment in and of itself, and, if done right, can be a great start to building your nest egg.

Ensure that you are ready for the mindset of “homeowner” and everything that it entails – you are now responsible for everything that happens in (or, sometimes, around) your new home. This goes for general upkeep and maintenance, as well as emergencies such as a leaky roof or a water heater that’s gone kaput. All things considered, you may not be saving money in the short term, even if your mortgage payment works out lower than your current monthly rent. There will be many upfront costs from some unexpected places when buying your first home, but, if managed right, will all factor into the equity of your home in the long term.

What Do You Need In A Home?

Try to create a list of what you actually need in a home before beginning your search. How many bedrooms do you need? Do you need a spacious yard? Will the schools in the area play a factor in your decision?

Be sure to separate your needs from wants, however. While it may be nice to have a backyard with a deck, it may not be necessary for your lifestyle. Prioritize your needs by order of importance, and then your wants. This will help you narrow down the types of homes that are right for you.

Think About What You Can Realistically Afford

When you meet with your first mortgage lender, they will more likely than not push you towards a more aggressive payment plan than you may not be able to realistically handle. You will need to factor in the aforementioned repairs and upkeep, property taxes, PMI (private mortgage insurance, generally required if your down payment is less than 20% of the sale price), and just life in general. Keep in mind that closing costs on a home will also need to be taken into account (generally 3-7% of the home’s purchase amount). In general, it’s best to keep the costs of the mortgage and associated taxes and maintenance at no more than 30% of your income.

Check Your Credit Score

Your credit score will have a huge impact on the types and terms of mortgage that you qualify for, and as such can either save or cost you a serious sum of money over the lifetime of the loan. Before buying your first home, check your credit score for any mistakes that may be bringing it down. If necessary, take the time to improve your score before taking further steps to buying a home.

Once you have a good idea of your credit score you will also get a better idea of what kind of mortgage you will be able to qualify for, and have a good foundation for understanding what you can realistically afford.

Shopping For A Mortgage

Once you have your credit score in order and a realistic budget, it’s time to start shopping around for a mortgage. This is generally done with the help of a mortgage broker, but don’t let this stop you from checking out smaller local banks and credit unions for interesting options. Carefully consider if you would prefer a fixed rate mortgage (FRM) or an adjustable rate mortgage (ARM). Each type of mortgage has its benefits, but it will be easier to plan ahead fixed rate mortgage. The most important thing to avoid is what’s called “going underwater”, which means that you owe more on the home than the home is actually worth. If possible, the best way to avoid this is to put at least 20% down when you buy your first home.

Once you have decided on a mortgage that best suits your needs, its recommended to get preapproved. This will help any offers you make on a home carry more weight as it shows that you are able to pay the amount you have committed to pay.

Start Your Search

Finally, the exciting part – house hunting! It’s fun to browse sites like Zillow, and definitely recommended in order to get a feel for the market and areas of interest, however it may be best to hire the assistance of a realtor. A good realtor can be a bit tricky to find, so if possible check with local friends or family for recommendations. Make sure the realtor you choose has your best interest in mind, and listens to your wants and needs. Your realtor will also be dealing with the majority of the paperwork, back and forth on offers, escrow, etc., and guide you through the process of putting in an offer and eventually buying your first home.

You’ve Found Your Perfect Home! Now What?

Before putting any offers forward, you will want to get the home inspected by a professional. This will ensure that the home that seems oh-so-perfect when you walked through it doesn’t have any hidden issues with plumbing, foundations, leaky roof, etc. This will also generally be required by your mortgage lender, and ensures that there are no unpleasant surprises after the keys have been handed over.

Make An Offer And Close The Deal On Your Home

Once credit scores have been checked, mortgages preapproved, and the property has been inspected, it’s time to submit an offer on your first home.

This part requires both patience and a delicate hand. Make reasonable offers, and listen to your realtor’s advice. Once an offer has been accepted, the process will go to escrow. Patience is key – don’t rush anything, make sure you understand everything you’re signing, and remember that the escrow system is designed to protect all parties involved in the sale.

Move In!

And that’s it! You are now officially a homeowner, the house is yours, and you can begin moving in. Don’t forget your financial plan for the lifetime of your loan – you will need to stick to this budget, and pay at least as much as you planned at the beginning of this process each month. Ensure that any old utilities are moved to your current address, and update your new address with your bank, credit card issuer, etc.