Buying your first home is a big step. There’s a lot more to consider than the listing price. Terms, additional fees, and complex language can make the process confusing and frustrating – but we’ve got you covered.
1. Create an actionable list
There is a method to real estate buying madness. Real Estate agent Jeff Miller (AE Home Group) advises his clients to build a top-down strategy before looking at listings.
Organizing your priorities will provide you with a substantial checklist to follow all the way through to your final purchase. Here are the preliminary steps that Miller suggests first-time homebuyers take:
- Set a purchase date goal (end of the year, by September, in two years).
- Visit your bank to start the pre-approval process (this will also give you an idea of how much house you can afford)
- Begin saving money for a down payment
- Select a real estate agent – find one that comes recommended by friends and family or is highly rated online
He adds that most people will likely have personal goals as well (specific neighborhoods, proximity to popular or frequently visited places, and other details that you may have in mind).
Once that list has been loosely created, you can start to fill in the details. Since your budget is a major deciding factor in buying a home, this is an excellent place to begin.
2. Set your home-buying budget
There’s a lot more to a home-buying budget than just the list price. There are a variety of additional costs that come with buying a home.
Once you have an ideal budget, you then need to factor in how much mortgage, taxes, monthly maintenance fees, and a slush fund for unexpected issues would cost. From that breakdown, you will then be able to find out what your real budget is and not what the bank said you would be approved for.”
Jayme Montgomery of Triplemint says, “Once you have an ideal budget, you then need to factor in how much mortgage, taxes, monthly maintenance fees, and a slush fund for unexpected issues would cost. From that breakdown, you will then be able to find out what your real budget is and not what the bank said you would be approved for,”
So, how much do those things cost? Here’s a rough idea:
- Mortgage: this depends on your pre-approval rate (see below).
- Taxes: According to the S. Census Bureau, most people pay $2,127 annually – this rate can be higher depending on your location.
- Maintenance fees: an average rule of thumb is to calculate 1% to 3% of purchase price yearly for maintenance fees (source).
Her suggestion to build a slush fund is also an excellent one.
If you spend your entire budget on the purchase price and closing costs, you won’t have anything left for emergencies. Roofs leak, driveways crack, and ‘Acts of God’ happen.
Making sure you’re covered in case something happens to you or your home is a wise idea. All of those numbers added up might seem like a lot, but it’s far better to be prepared when buying a home than to be hit with unexpected expenses.
Not sure how to figure out all of these dollar details? Montgomery advises first-time homebuyers to “talk with your financial advisor. If you don’t have one, set up some time to talk with your bank financial advisor and ensure you are not overextending yourself and are keeping your expectations realistic.”
3. Get approved for a home loan
Banks tend to be wary of first-time home buyers. The most crucial factor is whether or not you have good credit. If you have good credit, getting a home loan shouldn’t be difficult.
If you don’t have good credit, things can get tricky. In the case of bad credit, you have three plausible options:
- You should be willing to pay a higher interest rate. Not prepared? Add “fixing credit” to your list.
- Be ready to make a substantial down payment. Banks are more willing to lend to first-time buyers with bad credit if you have money to put down.
- Montgomery adds that some people might qualify for an FHA loan. “These loans usually allow for a credit score of 550-580 and give an interest rate as low as 3.5%,” he says. To qualify, you’ll need to meet that credit requirement and have a down payment of at least 10%.
Got good credit and a sizable down payment? You should be good to go as far as banks are concerned. But you still have to find a great real estate agent.
4. Select the right agent
“If you’re interested in a fixer-upper, then look for an agent who frequently posts about home renovations. If you’re interested in a historic home, find an agent who blogs about their experiences with local historical societies. Real estate agents use these platforms to promote their niche and give you the insight you need to determine a good fit.”
Modern agents are active online and tend to specialize. Finding an agent that’s a great fit is essential – you could be working with that person for more than a year.
First time home buying tips Summary – Getting it all together
All of this information adds up to three crucial factors: thought, research, and time.
To start on the right foot, check out SuperMoney’s mortgage review page to compare all the top lenders. We’ve researched so that you don’t have to.
Harriet writes mostly about technology and finance. She has been featured in Forbes, Business Insider, Success Magazine, in addition to SuperMoney.