Buying a new home for the first time is a major life milestone. It's also often an exciting one, as first-time homebuyers enjoy long afternoons visiting open houses, combing through listings, and planning the big move. But buying a new home can also be overwhelming. Home buyers also have to put together a down payment, find a real estate agent, juggle home inspections, closing costs, paperwork, and countless other expectations that go into the home-buying process. This is where a few first time home owner tips come in handy.
Rather than hoping to be swept off your feet by the perfect home, it might be better to look for the type of home in which you can build a lasting relationship by getting familiar with one another over time. The analogy isn't perfect, but you get the point. A home that you can grow to like—a lot—while living together might not be a stunner in the short term. It might, in fact, have some flaws that you will want to address. But it is often wiser to seek the potential in a home rather than perfection, and to consider long-term home suitability rather than short-term infatuation.
By keeping your options open and focusing on the possible during your home search, you should be able to realize the dream of home ownership while being true to your initial search criteria. It's an investment of time and energy, as well as money. Buying a home is also the largest single investment most people make. Make it a wise choice.
Here are some tips for avoiding common first time home buyer frustrations:
Know Your Home Buying Limits
Thinking you can afford a certain price and actually being pre-qualified for a specific amount are two different things. Today, it is always better to make pre-qualification your first priority, especially if you're a first time home buyer. Not only will it save heartache by putting a dollar limit on your home buying dreams, it will save time and allow you to make a confident offer when you find that special property.
If you listen to some of the real estate gurus out there, you would think buying a starter home is a big mistake. However, if you are a first time home buyer, buying a starter home makes a lot of sense. It may not have all the glitz and glamour of a newly built home, but it will prove to be one of the best financial decisions you will ever make. Here are a few things you should know about searching for a starter home.
Know Your Score & Financial Situation
No one likes to be reduced to a number, but when buying Nashville TN real estate, you need to know your credit score. Wondering how to buy a home for the first time? Most of the financial aspects of the deal will hinge on the buyer's score. The higher the score, the better position the buyer is in to negotiate a favorable interest rate and obtain the necessary financing.
The first step toward home ownership is to know your credit score. The major credit bureaus, Equifax, TransUnion, and Experian, collect data from your spending habits and aggregate the data into three scores. Lenders use these scores to evaluate how likely you are to repay a debt in the future. It's important to know that requirements vary from lender to lender.
The best loan rates are typically available to buyers with very high scores and solid financial standing. A buyer with a score at the lower end of a lender's acceptable range will pay more every month in interest than a buyer with better credit.
If your credit score isn't where you want it to be, you can take some immediate moves to improve it:
- Eliminate credit card debt: Paying down credit card balances will quickly reduce your overall debt load and increase your amount of available credit. However, you will want to make sure you are doing this far enough in advance of trying to secure a loan so that the initial dip in your score does not hurt your chances of approval.
- Scour your report for any inaccurate data: Challenge false information. Clear up any old debts.
- Do not close old accounts, even if you do not use them: A portion of the credit score depends on the length of your credit history so those favorable aging accounts are helping you.
- Do not open any new accounts: Too many recent inquiries can negatively affect your score.
Simply paying down balances can have an immediate impact on your credit score, but other improvements take time. Be wary of any service that promises to immediately improve your credit score.
Line up Your Financing before You Start Looking
Most people are tempted to get online and look for the best possible lending rate. Truth be told, you can find great rates right in your local community. Go speak with a few mortgage lenders in your town.
Find out what they have to offer and at what rates. Once you are approved, take your pre-approval letter with you on your house hunt. Having a pre-approval letter can often times give you an edge with the seller.
Understand What Down Payment Will Work for You
Long before a buyer makes an offer on their Nashville dream home, they saved money for a down payment. Conventional wisdom states that a prospective buyer will have 20 percent of the down payment in cash at the time of closing. These funds may come from savings, the sale of securities, gifts from relatives, or a loan from a 401(k). Mortgage companies may ask for documents to verify the sources of these funds.
Don't have 20 percent to pay towards a down payment? Many lenders will accept a lesser percentage as long as the buyer agrees to pay private mortgage insurance (PMI) until there is sufficient equity. Lenders with various loan options can accept down payments as low as 3 percent of a home's price, making the expense of a down payment much more accessible for first-time home buyers. Alternative funding such as an FHA, USDA, or VA loan requires lower down payments as well.
Decide What You Need in a Home
Buying a home—especially your first—is an exciting time. However, you may find yourself overwhelmed by the sheer number of choices. In addition to the style and location of your new home, you also have to decide: Are you looking for a starter home to sell in a few years, or are you ready to settle down into your forever home?
Knowing what you need will help focus your search and get the best house for your needs. Below is a series of questions to consider when determining the kind of house you should be searching for with your real estate agent.
It is recommended you sit down and make a list of 3 or 4 things you absolutely must have in a home. Everything else can either be added on at a later date, or you can wait until you can afford to purchase them in another home later home.
Be Realistic About Your Purchasing Power
When home shopping it's easy to get carried away, but you have to stay realistic. A buyer's list of wants may be extensive, but in the end, they will have to choose a home that is well within their financial means. Getting pre-approved for a mortgage will give a buyer a sense of how much they have to spend when home shopping. Understand that changing certain variables like the neighborhood or bowing out of a bidding war can have a significant impact on a home's price.
Make Sure You Pick the Right Location
You will often hear real estate agents say location, location, location. They repeat it three times to let you know how important location is. Even if you are purchasing a starter home, if you purchase it in the right location, everything else will work itself out.
Your 5-Year Homeownership Plan
As you think about the following questions, it's a good idea to project into the future for the next five years or so. While no one expects you to have a crystal ball, having a reasonable idea of how your see life unfolding will help you make the right investment choices for this major purchase. If you have no idea what you'll be doing for the next half-decade, a starter home is your default choice.
- What's Your Salary Outlook? If you're in a career with a clear income trajectory or you have reason to believe that you'll receive decent raises in the next five years, you might be able to spend a little more on that forever home. You may be spread a bit thin at first, but as your income grows you can invest in the renovations that will make the house your own - and perhaps increase the value of your home in the process. If you don't expect your income to rise, an affordable starter home is a better bet.
- What Are Your Career Goals? If your work involves travel or the potential for relocation, a starter home is a good idea—in particular, one that is in good shape and will sell quickly if you need to move in a few years. If you're feeling settled and love your location, you have more options.
- Will Your Family Grow? If you might get married or have (more) children within the next few years, it's best to consider a starter home. You may outgrow the house you buy today, or may want to move to a different school district when your kids head off to kindergarten. The equity you build in a starter home will help you move up to a dream home later when you need more elbow room.
Starter Home vs. Forever Home
The real difference between a starter home and a forever home is your mindset: What one person may be happy with for 30 years may only work for another for three. In general, though, a good starter home is one that you can readily afford without overextending on the monthly mortgage payment. The low price may mean sacrificing square footage or that perfect neighborhood, but do look for a house that's in good shape with low maintenance requirements. Good curb appeal for a quick re-sale is also important.
On the other hand, investing in your more permanent dream home means looking at other features. This house should have "good bones," meaning that its designed well and built to last, even if it needs cosmetic upgrades or investments in infrastructure like a new furnace or roof. Location is also important: a nice neighborhood, short commute and good schools are all things you don't want to compromise on if you can help it.
Approach Your Home Search with a Plan
Connecting with a reputable real estate agent sooner than later can save you time, money, and frustration - especially when inventory is tight. Don't delay!
House hunting is a task that requires time and effort, whether your move takes you across town or across the country. Assess your options, whether you're moving to a Nashville community such as Brentwood homes, or anywhere else. If it's a long-distance move, weigh the pros and cons of renting for a period of time as you settle in to new surroundings. At the very least, do some "homework" in advance. Read about neighborhoods, talk to locals, gather information.
Don't ever expect to find your new home in a single day. That really only happens on television! In fact, you might have to submit multiple offers before you reach a binding contract, especially in a competitive real estate market.
Expand Your Home Search
We all know the mantra, "Location, Location, Location." In real estate, it is true that location usually trumps everything. But, don't limit your home search to a single neighborhood or suburb. Instead, be honest about your requirements, whether they include a prime school district, access to parks and playgrounds, a dramatic view, easy commute or a community close to weekend fun and entertainment.
We can tell you from experience, that most buyers looking for their first home do not end-up purchasing in the area they initially started their search.
The key about "location" is to be flexible, and to make decisions based upon accurate information and realistic expectations. Home buyers who remain fixated on a particular area, are much more likely to make mistakes and/or overextend themselves financially.
Make Sure There are No Hidden Issues With the Home
Whether you like what you see or not, take the time to look at the home's structure in addition to its facade. Beware of the beautiful trappings of a builder's model home and know which features are standard and which are upgrades at additional cost. This can differ between communities, Clarksville real estate may be different from other Nashville neighborhoods. Look at the architecture. Measure room sizes and consider the physical layout to assure that the home will suit your needs, accommodate your furniture and reflect your style.
Tally the Cost of Homeownership
The mortgage might represent the largest chunk of your housing budget, but there are a myriad of costs of home ownership that you must not forget, in addition to taxes and insurance.
Investigate HOA dues, including any special assessments, community memberships, transportation costs, energy efficiency and prevailing rates for utilities, and the area's cost of living.
Also add in any one-time charges—for new furniture, a lawnmower, planned improvements, landscaping and general upkeep. Lastly, don't forget to set aside some of the budget for routine home maintenance expenses. Not keeping up with regular maintenance is a common first-time homeowner mistake, which will potentially cost many thousands of dollars when it comes time to sell.
Are You Handy? Don't Overestimate Abilities
Many homes require some work, and you will want to add personal touches. But don't plan to take on tasks that are beyond your abilities and your stated budget. Living in a "fixer-upper" is not fun, and buying a house that becomes a "money pit" is not wise.
In Home Buying Patience is a Virtue
It's a kindergarten lesson that has applications for house hunters as well. Buying a home is a long-term commitment. Know that even if your search extends longer than you wish, it is wise not to make a snap decision - patience is required.
When seeking to buy your first home, prepare to be tugged in different directions, but then resolve to let your mind rule over the heart. Recognize that your emotional desire to move and be settled in a new home might not be the best option, and that paying rent for another six months may be smarter than committing to a mortgage on a home that won't fulfill your needs. Finally, get your financial affairs in order before you begin your search, and you'll be less likely to be disappointed.
Work With a Reputable Real Estate Agent
It can be tempting for inexperienced buyers to try to go through the home-buying process without a real estate agent, but there are simply far too many potential pitfalls they can experience when attempting to buy alone. Your agent will be able to guide you through any tricky situations, including contingencies, negotiations, and contracts that can make or break the deal when approaching closing. They are full of first time home buyer advice, as they have the experience of many prior home buyers and sellers to help you zero in on a home that will fit your needs the best.
Figuring out how to buy a home or condo for the first time can be a confusing process for the uninitiated. Choose a qualified, experienced agent to advocate for you and guide you through every step of the process for a smooth transition into your new home.
The Ashton Real Estate Group of RE/MAX Advantage
The #1 Real Estate Team in Tennessee and #2 RE/MAX team in the World!