Are you thinking of taking the leap to purchase your first home but aren't sure what the steps to buying a house for the first time are? The best advice for first-time home buyers is to financially prepare to buy a home.
Being able to purchase a home depends heavily on your finances being in good standing. That means you don’t want to have too much debt, and you need to have a good credit score.
You may be dreaming of shiplap and that modern farmhouse kitchen, but are you financially ready to buy and own a home? There's much more to buying a house for the first time other than just knowing if it's a buyer's or seller's market!
Here, we’ll discuss how to prepare to buy a house along with first-time home buyer tips so you can be sure you’re ready to go house hunting!
How to prepare to buy a house: Advice for first time home buyers
There is a ton of advice for first-time home buyers out there, but we simplified the process of buying a house so you can be financially prepared for your new home!
1. Know how much you can afford
The best advice for first-time home buyers is to purchase a home you'll love and that you can comfortably afford. Otherwise, you can wind up house poor, and you definitely do not want that!
One thing you’ll learn quickly when house hunting is that your realtor will probably show you a few homes that are way above your budget.
That’s because they know many people will stretch to afford their dream home. Avoid this trap! Your budget for purchasing a home should be based on your income after taxes.
When considering signing on the dotted line, ask yourself if you’re comfortably able to afford the estimated monthly mortgage payments without feeling strained or impacting your other financial goals. To ensure you can comfortably afford your payment, calculate your net income by 30%.
For example, let's say your take-home pay is $2,000 a month. So, 30% of $2,000 is $600 a month. Buying a home that you can easily afford is one of the most important first-time home buyer tips that will set you up for financial success!
2. Have 20% saved for a house down payment
When shopping for a new home, it’s easy to get caught up in the magic and forget about the D-word. No, of course, we don’t mean divorce (or Dallas!). We’re talking about a down payment. Depending on what kind of loans you qualify for, you’ll be required to make a downpayment anywhere between 5% to 20%.
Many lenders won’t loan you more than 80% of the price of the home you’re looking to buy. Can't make a 20% down payment? Expect to pay more in interest. To build up a down payment, open up a bank account specific to saving for your new home, and calculate how much money you’ll need.
Then, build your savings into your budget so that you have a plan to save toward your down payment every month. Doing this will also help you figure out long it will take you to save money.
If you are getting financial help from family or close friends, you'll need a gift letter for a mortgage that basically clarifies where the funds came from.
Our advice for first-time home buyers is to save up as much as possible for your down payment! The more you pay down, the less you owe, and the faster you can pay off your home.
3. Know what your credit score is
How’s your credit score? Remember, lenders will look at your credit report and credit history to determine whether you’re a liability or not.
So before deciding, "Should I buy a house now?", check your credit report to be aware of your credit score and also for any errors that might exist.
Statistics show a third of American's credit reports have errors on them! So do your due diligence. One of the most important first home buyer tips is to work on improving your credit score to ensure you get the best interest rate.
Keep in mind that if you have bad credit it is still possible to buy a home. Here are key steps for buying a home with bad credit.
4. Have all your financial documentation in order
Another essential piece of advice for first-time home buyers is ensuring you have all of your financial documentation ready. You need to prepare your financial records because your lender will want to see them in order to approve you for a mortgage.
When it comes time to apply for a mortgage, your W2's, tax returns, bank statements, loan statements, credit card statements, and lots more will be on display. So have this documentation handy and current to provide to your lenders when they ask for it.
5. Get pre-approved for a mortgage
One of the biggest steps to buying a house for the first time is getting pre-approved. Be sure to shop around for a mortgage and determine what type of mortgage works best for you.
A fixed mortgage carries the same interest rate throughout, and an adjustable-rate mortgage has a variable interest rate after a certain amount of time has passed.
Inquire about any associated mortgage fees and mortgage insurance. You'll also want to obtain a mortgage qualification letter to show sellers (and your real estate agent) you are a serious and qualified buyer when you officially start house hunting.
6. Visit your potential home at night
Buying a house for the first time is a huge deal. You want to be sure you live somewhere that you love, so that means visiting your potential new home several times before signing that contract.
Our advice for first-time homebuyers is to visit your home at night as well. Why? Because you can see what to expect once the sun goes down.
Some places may seem quiet and peaceful during the day, but then there may be a noisy neighbor that has big parties or other things you won't notice during the daytime. This can save you from moving somewhere that simply isn't a good fit for you and your family!
7. Prepare for other associated costs
The most important advice for first-time home buyers is to prepare for all of the associated costs! This is a biggie! Buying a new home isn’t just about a mortgage payment, ladies! Be prepared to pay for your home inspection, closing costs, and moving costs.
Plan to factor these costs into your budget as you save toward buying your new home. Not only that, there are lots of hidden costs to be aware of as well. I’ve included several below. For instance:
1. Closing costs
You know closing costs are part of the process of buying a house, and you’ll have to pay them, but what exactly is included in closing costs? In a nutshell, they are the fees lenders, and third parties charge when you buy a home, and they can include:
- Attorney fees
- Inspection and appraisal fees
- Surveys to verify property lines
- Title insurance and title searches
- Discount points (which you pay to get a lower mortgage interest rate)
- Recording fees (to record the purchase in local government records)
- Mortgage evaluation fees
Preparing for closing costs is one of the most crucial first-time home buyer tips you can do.
2. Homeowners insurance
One of the steps to buying a house for the first time is purchasing homeowners insurance. If you're not buying your home outright, your lender will require you to have a policy on your new home before closing on the house. You can either purchase this policy out of pocket or have it included in your monthly payment.
Be sure to shop around for the best quote possible. Some companies offer bundling deals where you get discounted rates for bundling all of your policies with the same company. One of the savviest first home buyer tips is to compare rates so you can save money!
3. Moving costs
A common forgotten piece of advice for first-time home owners is to prepare for moving costs. In the excitement of buying your first home, it’s easy to forget that moving out of your old home and into your new one is an unavoidable home buying cost.
If you rent an apartment and are leaving before your lease is up, you’ll likely have to pay a penalty for breaking the rental agreement.
What’s more, professional movers will charge you a fee, often by the hour. If you choose to do your own move, you still need to consider the costs of packing materials and rental trucks.
Depending on how far you’re moving, you may also need to pay for a night or two in a hotel. Moving is, of course, part of the process of buying a house.
4. Homeowners' association dues
If you’re moving into a community with a homeowners’ association, it will be the seller’s responsibility to make sure the dues are paid up until the closing date. After that, dues are your responsibility.
Many associations collect their dues monthly or quarterly, so it’s likely you’ll need to pay shortly after moving in. It’s important that you factor that amount into your budget when assessing if a home is affordable or not.
5. Decorating and renovating
It’s very rare to find a resale home that’s decorated exactly the way you want it. Chances are pretty high that you’ll find something cosmetic you want to change right away, whether it’s changing wall colors, replacing window treatments, or ripping out old carpet. Even if you’re buying a brand-new home, you’ll still have decorating work to do.
Starting with a blank decorating slate is exciting, but it can also be costly. New home builders usually don’t include blinds or window treatments of any kind and choose very bland colors for walls. So, keep these expenses in mind when you are buying a house for the first time!
Don't forget your future expenses as first time home buyers
Finally owning your own home is super exciting! However, owning your home means you are solely responsible for all of the maintenance and repairs. So, one of the most important first-time home buyer tips we can give you is to build an emergency fund for unexpected repairs.
Saving money for when things break can keep you from racking up expensive debt. There are many things that homeowners insurance does not cover, so be sure you fully understand your policy.
Build your emergency fund into your monthly budget, so you are a financially prepared homeowner!
Use our advice for first time home buyers to be financially successful
Now you know how to prepare to buy a house! Remember, it’s also important that you have an idea of how long you intend to stay in a home. Of course, you want a place to call your own, but a home is also a great way to build equity.
However, equity takes time to build. If you end up house hopping after only a couple of years, you may not have built much equity in your home. Homeownership is great, and it’s definitely something to consider including in your wealth portfolio.
But remember, another part of the process of buying a house is to plan accordingly and be ready to stick with it for the long term. This will help you attain the benefits of homeownership. Once you are all set, you can start planning how to pay off your mortgage early or maybe even buy a second home for a rental property!
For additional guidance, sure to check out our completely free course on buying your first home!