Buying your first home can be an exciting and intimidating process. Using self-education and good planning, this guide will walk you through the homebuying journey.
Evaluate your savings, credit score and long-term goals to decide if homeownership is right for you. Research financing options, including special loans for first-time buyers and military-focused options like VA mortgages with favorable terms.
1. Get Pre-Approved for a Mortgage
Before beginning your home search, you should apply for mortgage preapproval with a lender. This will help you establish how much you can afford, narrow your house-hunting to homes within that budget and streamline the process by demonstrating to sellers that you are a serious buyer. Preapproval usually involves submitting an application to the lender along with documents verifying your income and assets. The lender will also perform a credit check to evaluate your creditworthiness. This will result in a “hard inquiry” on your credit report, which can temporarily lower your score by a few points, but it will not remain on your report for more than two years.
Getting preapproval for a mortgage is also an opportunity to shop around and compare interest rates. It is advisable to seek preapproval with more than one lender, as each will have a different set of requirements for loan qualification.
Homebuyers often use the term preapproval and prequalification interchangeably, but they are distinct processes. Mortgage prequalification is based on self-reported information and is not a guarantee of loan approval, while mortgage preapproval requires more thorough documentation and can take anywhere from a few days to several weeks to complete.
When you are preapproved, you will receive an offer (but not a commitment) from the lender to lend up to a certain amount and an estimated interest rate. A preapproval letter is valid for 60-90 days, so it is wise to get approved before you start looking at properties.
To determine how much you can afford, factor in mortgage payments, other housing expenses like utilities and HOA fees (if applicable) and potential future repairs. Also consider your other financial goals and whether homeownership aligns with those objectives. If you are not ready to put a ring on it, buying a new home may derail your long-term financial plan.
Once you are preapproved, your real estate agent can assist with finding properties that match your budget and other criteria. Your realtor can also help you make an educated decision when determining whether to move forward with an offer on a property or not. In a competitive market, having a strong preapproval can give you an edge with sellers because it shows that you are a strong buyer who is likely to qualify for financing.
2. Find a Real Estate Agent
Buying your first home is an exciting time, but it can also be confusing. A real estate agent will guide you through the process and help you avoid mistakes that can cost you money and delay your purchase. Choosing the right agent is crucial. There are many factors to consider, including their experience, local market knowledge, track record, and commission rates. You can find an agent by asking friends and family for recommendations or searching online reviews. Once you have found an agent, schedule consultations to discuss your needs and expectations.
Your real estate agent should be knowledgeable about the current housing market and its trends. They should be able to answer your questions about mortgage rates, neighborhood prices, and availability of homes in your price range. They will also be able to help you determine whether you are financially ready to buy a home and can afford a monthly mortgage payment. They should also be able to assist you with obtaining preapproval for a mortgage, which will save you time by ensuring that you only look at houses that are within your price range.
When evaluating an agent, it is important to choose one that you trust and feel comfortable working with. You will be sharing personal information and discussing financial matters with your real estate agent, so you need to make sure that they are trustworthy and will keep your best interests in mind. Additionally, it is important to choose an agent who specializes in the type of home you are interested in purchasing. For example, if you are looking to buy an HDFC unit, condo, co-op, or land-lease building, you should work with a real estate agent who has experience with these types of properties.
Once you have selected an agent, it is time to start house hunting! You can start by visiting open houses and taking tours of properties that meet your criteria. Remember to be objective and take notes as you tour each property. Write down your thoughts about the property, such as its condition, potential renovations or repairs required, and whether it fits your lifestyle.
3. Start House Hunting
Purchasing a home is one of the most significant financial investments you can make. Getting educated about the process and finding a team of professionals to help guide you through it can go a long way toward making your homebuying experience as smooth and successful as possible.
Before you start looking at houses, it’s important to understand the basics of mortgage financing and determine your budget. It is also crucial to understand the current housing market and be prepared for potential price fluctuations, which could impact your loan approval.
A mortgage broker can give you a rough estimate of what you can afford based on your income, debts and savings goals. However, only a lender can confirm how much you can borrow based on your credit report and other financial documentation. Obtaining a prequalification letter from a mortgage lender is an excellent first step in the house-hunting process.
When you start looking at homes, be sure to create a list of your “non-negotiable” features. This helps you stay focused and prevents buyer’s remorse when you find a house that has everything on your wishlist but doesn’t quite fit within your budget. For example, a walk-in closet might be a nice feature but it isn’t essential to your daily lifestyle.
Once you have narrowed down your search, ask friends and family for recommendations for a real estate agent. They can help you find someone who specializes in your area and has extensive experience working with buyers like you. Once you’ve found an agent, trust them to assist you in making offers on homes that meet your needs and are within your budget.
Before you decide to make an offer, take some time to assess the condition of the property and consider future maintenance costs. Unless you are purchasing a brand-new home, it’s likely that you will need to make at least some renovations in the near future. Be sure to factor these expenses into your buying budget so you don’t end up with unexpected costs after moving in.
It’s also a good idea to allow some time to settle into your new home before starting any major projects. This can help you better understand how your home functions and can save you money by avoiding the temptation to immediately update or renovate.
4. Make an Offer
Buying your first home is an exciting and big financial commitment. But if you follow the advice and tips in this guide, you can make the process smoother and less stressful.
It’s important to get pre-approved for a mortgage so you know what your loan limit is. This step can also help you avoid overspending on a home and getting into debt. Getting pre-approved can also put you in a better position in negotiations with sellers, since the seller knows you are a serious buyer.
When you find the home of your dreams, it’s time to make an offer. This is where your real estate agent will come in handy, as they can help you craft a strong offer that meets the seller’s expectations and is within your budget.
Be sure you physically have the cash to purchase a home, which may mean selling investments or consolidating savings from other accounts. It’s customary to submit between 1% and 3% of the asking price in earnest money, which shows the seller you are serious about purchasing their home. It’s also a good idea to write in that some or all of the earnest money is non-refundable once you reach a certain point in the negotiation process, which can demonstrate your commitment and strengthen your offer.
Another way to set yourself apart from other buyers is by including a contingency for a home inspection. This will give you the opportunity to have the home examined by a professional before you close on the property, so you can make repairs or negotiate a lower sale price if necessary.
Some buyers will also include a request for the seller to pay closing costs or their agent’s commission as part of your offer. This can reduce your out-of-pocket expenses and stretch your budget even further.
Remember, it’s a seller’s market right now, and you will likely face competition from other buyers in bidding wars. So, it’s essential to stay within your budget and be ready to move quickly if you see the right home. Also, keep in mind the sellers’ desires: if they need to move out of their current home by a specific date or want to lease back their house for a month or two after it sells, you might be able to accommodate those requests to make the deal more attractive.
