So, you’re thinking about or planning to buy your first home… first off, congratulations! That is such an incredible step in life and something you should definitely feel very proud of!! Two weeks ago, I shared what Edwin and I learned from buying our first home in Charleston. As I shared, we had major ups and major downs with the process and we learned SO much from buying a house! We’re so happy now with the home we have!
This week, I want to share a post less about us and more about the general house buying process. I’ve never worked in real estate so I am by no means an expert but, after buying a house, I know I can share some steps for first time home buyers that are useful and helpful. Television shows make it seem like you go tour a house, decide you like it, make a phone call to the real estate agent, maybe do one round of negotiations, and boom you get keys to your new house. In actuality, so much more goes into buying a house and there are so many ways you can proactively prepare for the house hunting and house buying process.
Steps For First Time Home Buyers
I have friends that live all over the country so buying a home looks very different to each one of them. Also, I have tons of friends who live in cities like Los Angeles and New York City so buying a house isn’t even on their radar as something they are thinking about or planning to do because the cost of living is so expensive in these cities. I then have other friends who live in more affordable states, cities, and towns outside of major cities so buying a home has been more of a reality. Saving money looks very different depending on where you live and depending on each person’s independent circumstances. However, no matter what, you most likely have to save some money in order to buy a house.
Check your Credit Score
You’ve probably heard your whole life that your credit score matters but you might not have really given it tons of thought. Well, I can confidently say that you will give it lots of thought when it comes time to buy a house. In some cases, mortgage lenders will even advise you to wait to buy a house so you can build up your credit (if you have a bad credit score that is). Yes, it’s that important to have a good credit report! Use your credit cards wisely, pay off your loan payments on time (student loans, car loans etc.), and take your credit report seriously.
Determine your Budget
How do you determine your budget and find a house you can afford? There are a lot of different factors that contribute to what price you can go up to and what kind of loan you will qualify for. However, it is still super helpful to learn what your approximate budget is right out of the gates with the search process. For this, I recommend using an online mortgage calculator to get a general idea (these aren’t completely accurate) and then to work with a mortgage broker (aka a lender) to determine your budget and price range.
Shop around for a Mortgage Broker
I went into this a bit in my post about what we learned from buying our first house but I couldn’t write a guide on steps for a first time homebuyer without discussing this topic again. I had literally no idea that you could shop around for a lender. My parents and our financial advisor were the ones that strongly encouraged Edwin and me to do this and I’m so happy we listened to them. When it came down to it, we really liked a referral from our financial advisor as well as a referral from our real estate agent.
We ended up picking one over the other because one lender gave us a better loan program and rate. Locking in the best mortgage rates you can is massively important when buying a house so take this step seriously and do your due diligence with shopping around for a mortgage broker. Your mortgage payment, in the form of monthly payments, will be affected by the sale price of your home, your down payment, your loan size, your interest rate, your loan term, and your property taxes and insurance. While this is true, different lenders can at times offer you different things.
Getting pre-approval is a hugely helpful step to take when buying a house. Why? A pre-approval letter from a lender will help you when you make an offer (especially if there are competing offers from people without pre-approval). In addition, going through the process of getting pre-approved will help you gain insight into what home price you can afford. To get pre-approved, you will complete an application that consists of your credit report, financial history, loan history, and debts. Your lender will tell you everything you need in order to complete the application (you can also find general lists online), which is another reason why it’s helpful to shop around for the best possible mortgage broker.
From personal experience, I will say that it can be a bit more work if you are self-employed as you will need to gather and supply more documentation (I used to be a teacher but Edwin has been self-employed since the day he graduated from college) but it’s completely doable. Getting pre-approval is one step in the house buying process, not the step. So, it’s important to note that just because you’re pre-approved, doesn’t mean you’re guaranteed for a loan. After you put in an offer on a house, go under contract, complete your home inspections, and work through your negotiations, only then will your loan will go through underwriting before a bank actually approves it.
What To Consider When Buying A House
Think about Location, Location, Location
Once you start saving money, you can compare home prices in different neighborhoods where you live to get a sense of where you want to start looking. There are so many factors that go into picking a neighborhood like easy transportation and parking, schools, safety, proximity to family, friends, and work etc.
There are also lots of things to consider with neighborhoods and the amount of time you picture yourself in the home… do you want to have the smallest house in the nicer neighborhood to live there or have more space in a second or third choice neighborhood? These are all hugely important conversations to have with yourself if you are buying independently or with your significant other if you are buying with someone else. I think the “location” conversations can be fun ones to have for first time home buyers!
Find the Best Professionals to Work with
I touched on this topic in my post about what Edwin and I learned from buying our first house but it is a tip so important that it warrants another mention. On average, when you buy a house, you will work with a realtor, a financial advisor, a mortgage broker, an insurance broker, a real estate lawyer, and an inspector. Find and work with the best of the best because each one of these individuals will help guide you through the nitty gritty of the home buying process and is a wealth of knowledge in their field.
Our financial advisor was the only professional mentioned in the above list that we already worked with. We found every other person through referrals, which I think is the absolute best way to go about it. Use people you know and trust and use referrals from people you know and trust! Find professionals you feel comfortable asking the hard and the “silly” questions. Find professionals that are good communicators and easy to get a hold of. Also, find professionals that know your neighborhood and city. Find professionals that have your best interest in mind instead of their potential income in mind. All of these things are key tips to consider!
Focus on your Inspections
Speaking of working with the best professionals… finding a great inspector is a hugely important thing to consider when buying a house. Cosmetic issues are what always really jump out but inspections are about so much more. Inspections help you identify any glaring issues that could make a house unlivable or could cause you large financial investments down the road. When reviewing your inspection reports, focus on big key areas like the roof, fireplaces/chimneys, the HVAC system, the plumbing system, the electrical system, the foundation, basements, attics, and mold.
Create a Fund for the House Hunting Process that is Different from your House Purchasing Fund
I, along with anyone else who has ever bought a house, will tell all first time homebuyers that the process of buying a house costs more than you think. The process is loaded with hidden costs. Perhaps the largest cost that I simply never thought about until we bought our house was closing costs. In addition, be prepared to pay for home inspections, pay a loan origination fee, and pay a real estate lawyer.
Strategize your Down Payment
You’ve probably heard that it is “best” to put 20% down on your house. This is said because, if you can do a 20% down payment, then your loan application is stronger and lenders don’t see you as a risky loan. The amount you put down affects your monthly mortgage payments as well. If you are unable to put down 20%, don’t worry because there are now tons of options for first time home buyers who can’t afford to put down that large of a chunk of money.
Believe it or not, but there are mortgage programs that will let you put down as little as 3%. A very important hidden cost to keep in mind though is mortgage insurance. In most cases, if you put down less than 20%, you will be required to pay mortgage insurance, which is added onto your monthly mortgage payment. Your lender will help you decide how much you can put down and what type of loan is best for you. (An interest only loan, a fha loan, a va loan, etc.). A great financial advisor is also invaluable in helping first time home owners make these decision too.
I hope any perspective first time homeowners found this post helpful! It can seem daunting and overwhelming to buy your first home but once you get the ball rolling, it comes together and you learn everything as you go! I’m wishing each and every one of you the best of luck with house hunting! xx
Photography by Edwin Eversole