11 First Time Home Buyer Tips: A Step-by-Step Guide
Being a first-time home buyer is both exciting and scary at the same time. Do you want a place to call your own but have no idea where to start? Are you overwhelmed by all the decisions and the financial hoops you’ll have to jump through? Well, we’re here to help! We’ve compiled 11 first time home buyer tips, step by step, to help you through the process and avoid any rookie mistakes.
Read on to learn all about them!
1. Get Preapproved for a Mortgage
At Team Morris Homes, we always say that preapproval should be the very first step before even focusing on saving up. It helps you understand exactly what you can afford so that you and your Realtor can stay within budget, and it also helps prevent some surprises later down the line. When getting preapproved, it’s important to shop around for the best deal, and then pick a primary lender and a backup one, just in case.
There are also a variety of mortgages to choose from. The four main types are:
- Conventional Mortgage: The most common type of mortgage, you can often buy a home with as little as 5% down. Generally, they require a credit score of at least 620, though that can change depending on the economy. You will also have to buy private mortgage insurance (PMI) if your down payment is less than 20%, but once you have 20% equity in your home, you can cancel the PMI. On the positive side, the overall cost after fees and interest is often on the lower side when compared to other loan types.
- FHA Loans: Federal Housing Administration loans are beneficial if you have a lower credit score or more debt, since they only require a score of 580, for a down payment of as little as 3.5%. You may even qualify with a credit score of 500 in you put down 10% instead. So what’s the downside? FHA loans require borrowers to pay for PMI regardless of the size of your down payment, and it’s more expensive than PMI for other loans. Additionally, the insurance lasts for the lifetime of the loan unless you make a down payment of 10% or more. If you do, then you only have to pay the insurance for 11 years. You also have to pay an upfront insurance premium of about 1.75% of the loan amount. The other thing to keep in mind is that the home has to be in pretty good shape for the FHA to approve the loan, so a fixer-upper may not be an option.
- USDA Loans: United States Department of Agriculture loans are for buyers looking to live in rural areas. Check out USDA’s site to see what areas are eligible. USDA loans are designed for people who are in need of financial assistance, so your household income can’t be more than 115% of the median income in your county. No down payment is required at all, with no PMI requirement either, but it does require a credit score of 640.
- VA Loans: Veterans Affairs loans are for veterans or current military service members. If you qualify, this is a fantastic choice for a loan because they are more flexible due to the assistance the VA provides. Essentially, the VA guarantees that the government will repay the lender if the borrower doesn’t make their payments. Lenders love this assurance, and therefore often do not require a down payment and have more favorable rates. It’s still always a good idea to pay a down payment if you can, but this benefit makes it a great choice for those who don’t have much saved up. Additionally, closing costs are often less than they would be for other loans. There is a loan funding fee, however, that ranges from 1.25% to 3.3% of the loan. You can pay it up front or fold it into the loan. Similar to the FHA loan though, the house has to be in good shape to be approved.
2. Start Saving Up
Buying a home is an unfortunately expensive process, and we’re not just talking about the price of the house. Many first-time home buyers don’t realize that there are also closing costs to keep in mind – it’s just not something commonly discussed. So, when you’re thinking about buying a house, you need to keep these costs in mind:
- Down Payment: A home isn’t exactly something you pay cash for, so we as mentioned, you’ll need a mortgage. This will require a down payment, essentially monetary proof that you make enough income to eventually pay off the mortgage. Down payments range from 3.5% to 20% of the house price, depending on your credit score and the type of loan you choose. So for example, if you’re looking at a house that costs $300,000, you’ll probably want to save up about $20,000 for the down payment.
- Closing Costs: A lot of first-time buyers are unaware of closing costs and how expensive they can get. These are up-front fees for the various services involved in finalizing a home purchase, and they cost you anywhere between 2% and 6% of the loan amount. These costs cover things such as appraisals, attorney fees, escrow fees, insurance, title fees, etc. You’ll be given a breakdown of the exact costs in your Closing Disclosure document when the time comes. So for that $300,000 house, you’ll pay $6,000 – $18,000. However, don’t panic yet! It’s fairly common, depending on the market, to ask the seller to help pay for the closing costs.
3. Work on Your Credit Score
If you aren’t already, it’s time to start working on your credit score. That little number is essential for getting a mortgage, including how large of a loan you get approved for and at what interest rate. Pay off your credit cards if you can, and don’t make any risky spending choices. Make sure your bill payments are always on time. And don’t close your existing credit lines. A good credit score means that you’ll be reliable when it comes to paying off your mortgage, and that’s what lenders care about. So get that number as high as you can. You can also get a free annual credit report from the three major agencies: Equifax, TransUnion, and Experian. Then read over them and be sure to dispute anything that seems out of place.
Additionally, do not finance anything new while you’re house hunting or during the closing process. The more you owe, the less you can borrow, so don’t go buy a new car or open a new line of credit. It could also negatively impact your credit score, ultimately resulting in a higher interest rate for your home mortgage. Worst case scenario, you might not get approved for a mortgage at all.
Keep that score high, and keep it steady, and you’ll be all set.
4. Calculate How Much You Can Afford
Buying your first house is much like buying a new car – just because you saved up for the initial payment, it doesn’t necessarily mean you can afford the recurring payments afterwards. There are plenty of mortgage calculators out there that can help you determine what you can afford based off of your income, loan length, and the size of the down payment you’ve saved up. However, in addition to the monthly mortgage payments, you also have to factor in insurance costs, property taxes, utilities, and maintenance costs.
You’ll also be limited by your lender. When you get preapproved, you’ll learn exactly how high of a mortgage you qualify for. However, the lender could be willing to loan you more than you can realistically afford, so it’s important to do your own calculations.
5. Decide What You Want in a House
Now that you’ve determined your budget, the fun part starts!
Make a checklist or even a spreadsheet detailing all the things you do and don’t want in a house. Location, number of bedrooms, square footage, etc. Do you want a fireplace or a pool? Maybe you’re looking for a certain design style, or want to avoid older homes. No matter your preferences, write them all down. Make notes about how flexible you are on each item as well, because it’s unlikely you’ll find the perfect home. Maybe you want a garage, but would settle for a carport, or maybe you want 3 baths but could live with 2.
There are a lot of aspects to consider, but having this sort of checklist ready will be extremely helpful for your Realtor. They can take all your preferences and go on the hunt for you, minimizing the amount of work you have to put in.
6. Choose a Realtor
Speaking of Realtors, how do you find one? Do you even need one? Realtors like Mark and Shannon Morris with Team Morris Homes can be extremely helpful through this process, especially for first-time home buyers. Not only are they experts in finding homes for you, but they will also navigate the purchasing process for you. They’ll do the negotiating and planning; all you have to do is tell them what you want. They’ll handle the paperwork, and you just need to sign it (and read it). They are also helpful in finding homes that aren’t even on the market yet, since they may have inside knowledge.
Back to the first question though, how do you find a good Realtor? Of course, if you’re looking to move to the Greater Chattanooga area, give Team Morris Homes a call! We are always happy to help and have plenty of experience with first-time home buyers. Otherwise, you should start with referrals from people you know who have bought a house recently, and then do some research online. You’ll want to contact a few Realtors and ask them about how they plan to help you find a home.
However, one thing you do not want to do is call a Realtor on the signs you see around your neighborhood. If you want to purchase one of the homes they’re selling, they might not have your best interests in mind. Their ultimate goal is to sell that house, whether it’s the right one for you or not, because if they are representing both the buyer and the seller, they get the entire commission, instead of splitting it with a buyer’s agent that would represent you. It’d be difficult to trust that they’re getting you the best deal on the best house if they’re getting more payment than they would otherwise.
7. Tour Homes
Now that you’ve picked Mark and Shannon of Team Morris Homes, you can finally start looking at houses. Feel free to check out our real estate search page, but keep in mind that your Realtor can do most of the heavy lifting. We’ll do all the research, not only for the things on your checklist, but also for more hidden things such as flood zones and structural issues.
Once you’ve picked out a few properties you like, it’s time to tour them! It’s best to do this in person, but if you are moving across the country, Mark and Shannon would love to video chat with you and walk through the property. Either way, you’ll want to keep an eye out for several things while touring, besides just the style and layout of the home:
- Before you even step foot in the house, pay attention to the neighborhood. Is it on a busy road? Is the neighborhood lower quality than expected? Does it feel safe? Is it noisy?
- Parking. Sure, you can park in the driveway fine, but where would guests park? And if there’s a garage, check out how many cars can fit in it, and what height. For example, not all two-car garages can actually fit two large pick-up trucks.
- Storage space. People don’t often post pictures of the inside of the closets, so be sure to open them up while you’re there. Check cabinet drawers too.
- Age and condition of appliances, especially the A/C unit. The last thing you want after buying a new house is to have to fork over money for a brand new heating and cooling system.
- Condition of the roof. Now, you don’t have to climb up onto the roof, but just keep a look out for missing shingles or other damaged areas. A new roof is yet another expense you don’t want to pay for if you don’t have to.
- Cracks in the walls or a warped floor. These could be signs of foundation issues within the house.
- Signs of water damage or mold. Does the house smell moldy? Does it have discolored spots on the ceilings, floors, or walls?
Take plenty of notes while you’re going through the house about all the things you like and don’t like, and any concerns you have. Also, try to look past the little things like wall color, light fixtures, and cabinet hardware. If you already like them, that’s great, but it not, they are easy and relatively cheap to change.
8. Making an Offer
So you’ve picked out a home that you absolutely love. Now what? This is a major decision and can be stressful; you want the house, but what if other people do too? Should you offer the asking price or bid under for a better deal? Maybe the market is hot and it’d be wiser to bid over the asking price. Well, this is where Mark and Shannon Morris come into play. With their expertise, they can help you make the smartest decision depending on the circumstances. They may suggest you sweeten the deal and offer to pay all closing costs, or maybe suggest asking the seller to repair a few things. At the end of the day though, it’s your decision. Ask yourself how much the house is worth to you, and go from there. Once you decide, Mark and Shannon will do all the negotiating and paperwork for you.
9. Schedule a Home Inspection
Home inspections are crucial, but what are they? Essentially, an inspector will go to the home and ensure that everything functioning properly. They’ll test all the important things like the foundation integrity, plumbing, electricity, the roof, and so much more. Once they’re done, you’ll get a thick inspection report, pictures included, and you can use that information to decide whether you want to move forward with the purchase or not. You can also take the opportunity to request that the seller repairs anything worrisome, or even adjust your purchase offer.
How do you go about finding an inspector? Don’t worry, Mark and Shannon have plenty of suggestions for you.
Now, you might be inclined to skip this step since it’s not actually required to perform an inspection, perhaps hoping to save money. Don’t do this. Inspections can reveal some pretty serious problems the property may have that you don’t want to deal with. Plus, it’ll give you peace of mind knowing the home is safe. No matter what, always get an inspection.
10. Final Walkthrough Tips
Once you find a home that passes inspection, it’s time for the final walkthrough. It’s exactly what it sounds like: you walk through the house one last time to be certain that it’s in the same condition it was on the day you got it under contract. At this point, all (or at least the vast majority) of the seller’s furniture and belongings should be out of the house. Now’s your opportunity to look at things that furniture may have been blocking, and also to review any repairs you requested the seller to fix.
Here are some things to do during your walkthrough:
- Check that the house is still in the same shape. There shouldn’t be any major/unexpected changes or new damages.
- Make sure any repairs you requested have been completed.
- All appliances included in your contract should still be there – such as the oven, dishwasher etc. Test that they still work.
- Heating/cooling, water, electricity, and gas should all still be on and functional.
If you’re fully satisfied, then all that’s left is to…
11. Close on the House - Become a First Time Home Buyer!
The most exciting day of all! Let’s buy a home! Essentially, you will be going to a title company and signing a LOT of paperwork. This is where you’ll be handed the keys and given any necessary alarm codes, etc.
Mark and Shannon will help you through this process and set up the paperwork, and your lender will handle the money transfer over to the title company. If you need to bring an extra check for closing costs, the attorney or title company representative will let you know ahead of time, as well as what form that payment should take.
Make sure you arrive early and set aside an hour or so for the meeting. Also, remember to bring everyone’s ID.
Really that’s all there is to it! Sign those papers, grab your keys, and rejoice in successfully buying your first home!
