Things to Think About Before Purchasing Your First Home

Real Estate

Buying a home has been a part of the American dream for a long time. But is it the right decision for you at this moment?
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Maybe you’ve landed your dream job and you have a dreamy partner. Suddenly, you are considering settling down, leaving your noisy apartment, and purchasing a house. However, take a moment to slow down. It is a huge decision. Owning a home usually means an increase in your monthly payments for mortgage, utilities, and maintenance, as well as a commitment to maintaining the yard.

However, it is the American dream, along with finding a job and a partner. Before you find yourself in a nightmare, read our list of things to keep in mind to help make the dream even sweeter.

10: The Market

The real estate market is constantly changing. Therefore, before you decide to buy, you need to have a good understanding of the current market.
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Since the Great Recession in 2008, the real estate market has bounced back and forth between a buyer’s and a seller’s market in many areas. Have you ever wondered what these terms mean?

A buyer’s market is when there are more houses for sale than there are buyers. This occurred early on in the recession when there were more new homes than builders could sell. The buyer’s market continued as the recession dragged on, people lost their jobs, foreclosures peaked, and housing prices fell.

The opposite, a seller’s market, occurs when there are fewer houses on the market than there are buyers. In the run-up to the recession, there was a booming seller’s market in most parts of the US. With several buyers often bidding for the same house, home prices kept reaching new heights.

Speak with a real estate agent in your area who can help you understand the market and how it is currently influencing buyers.

9: The Process

There is preparation to do before you even start looking at homes with a realtor.
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Buying a house is not like buying groceries, or even a car. It can be a complicated process involving a lot of paperwork that often makes little sense. Here are some of the general steps (specifics may vary by state) that you will need to take as you prepare to sign on the dotted line.

Before you start looking:

• Save your money. You’ll need it for a down payment, a home inspection, closing costs, some repairs or upgrades to your new home, and monthly mortgage payments.
• Get prequalified for a loan to find out how much you can afford to spend on a house. This prevents you from looking at houses that are out of your price range and also informs the sellers that you are serious and can afford their home.

Once you’re under contract:

To prepare for buying a home, there are several important steps to take. Firstly, even if you’re preapproved for a loan, it’s important to understand the loan process and what documents you’ll need to provide. Additionally, having a professional inspector examine the house can uncover any potential problems. Lastly, you’ll need to gather certified funds for the down payment and closing costs. When considering what type of house to buy, it’s important to think about your preferred style and neighborhood, and to discuss any deal breakers with your partner and real estate agent. Affordability is also crucial to consider, including mortgage payments, closing costs, and potential homeowners association fees. Finally, before beginning the home-buying process, it’s important to check your credit score, as it will affect your interest rate on the loan.

Your credit score is influenced by various factors such as the number of credit cards you have, outstanding balances, student and car loans, and whether you pay your bills on time. A higher credit score increases your chances of getting a loan for a house at a lower interest rate.

Credit reports often contain mistakes that can decrease your credit score. Make sure to carefully review your credit report and correct any errors before applying for a home loan.

5: Down Payment

The larger your down payment, the better position you are in as a homebuyer.
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The amount of money you pay upfront for your home, known as the down payment, can vary from 0 to 20 percent or more depending on the type of loan and your credit rating. Research and consult with lenders in your area to determine how much you need to pay as a down payment.

Credit unions and government-backed programs, such as the Veterans Administration (VA) and the Federal Housing Administration (FAH), offer low-down-payment loans. Conventional loans, not sponsored by the government, typically require a higher down payment.

First-time homebuyers often struggle to save enough for the down payment. Some are fortunate to receive financial help from their families. However, before accepting such assistance, discuss it with your lender to ensure that the money is a gift and not a disguised loan.

Lenders scrutinize your bank statements, credit history, pay stubs, and tax returns before deciding to loan you money. If you suddenly receive a large sum of money, they will want to know its source. If it is a gift without any conditions, you may need to provide a gift letter from the giver that states their name, the date of the gift, and that it is a gift without any expectations of repayment [source: Brackel].

4: Job

If a long commute is unappealing to you and you believe your job is relatively stable, concentrate your house hunt near your workplace.
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When considering purchasing a house, you should take into account two job-related factors. First, how secure is your job? Have you been employed for at least a year? Do you anticipate remaining in the same position for the next several years? These are all factors that a lender will examine and discuss with you prior to approving a loan.

Second, you should consider your commute. Does the length of your commute matter to you or your partner? If you select a home near your workplace and then lose your job or accept a position in a different location, would you still be happy living in that location? If you work remotely, do you require a dedicated workspace for equipment, computers, or a telephone? There are no right or wrong answers to these questions; weigh your options and discuss them with your partner to determine the best course of action for your situation.

3: Household Repairs and Maintenance

Owning a home means being prepared for necessary repairs and maintenance. Before committing to a monthly payment, consider the costs of upkeep. Unexpected emergencies like air conditioning replacement, roof leaks, and refrigerator breakdowns can happen frequently. It may be wise to set aside some money every month to cover these costs. If you are handy, purchasing a fixer-upper may be a cost-effective option. However, make sure to assess the neighborhood’s value and potential for growth before making such a commitment.

2: Children

If you plan on having children, it is essential to consider the school district and neighborhood before purchasing a home. Studies show that buyers are willing to pay more for a home in a desirable school district. Even if you do not have children, it is still advisable to consider the school district as it can impact your home’s resale value. Other factors to consider include the neighborhood’s safety, family-friendliness, and accessibility to amenities like playgrounds and swimming pools.

1: Future Plans

If you anticipate relocating in the future, buying a home may not be the best option. Consider the housing market in your area and the potential for growth. When buying a home, closing costs and mortgage payments can be significant expenses. It may take several years before you begin building equity in your home. Before making a long-term commitment, assess your future plans and potential for relocation.

In a buyer’s market, selling your house within the first few years may not be profitable. However, if you come from a long line of residents in a particular neighborhood, it may be a good time to buy a home that can accommodate your family and visitors. Unfortunately, there is no federal tax credit for first-time homebuyers in 2020, but some states offer assistance based on income. President Joe Biden has proposed a $15,000 tax credit for first-time homebuyers in 2021. To get approved for a mortgage, lenders consider your credit score, income, down payment savings, assets, and outstanding debt. Federal Housing Assistance loans require a 3.5% down payment, but some loans require $0 down payment for veterans and people living in rural areas. First-time homebuyers in the US should aim to have 20% of the home’s cost as a down payment, along with money for closing costs and lawyer fees. To qualify for an FHA loan, you need a credit score of at least 500, but a minimum of 580 is required for the lowest down payment. When buying your first home, it’s crucial to do your research, plan your purchase, and communicate with your partner and agent to avoid making mistakes that could lead to regret.

Related Articles

• Understanding the First-time Homebuyer Tax Credit
• Top 5 Programs for First-time Homebuyers
• Repaying the First-time Homebuyer Tax Credit
• Should You Buy Your First Home?
• The Mortgage Interest Tax Deduction: How It Works

Sources

• Bankrate. “Credit Scores: What You Need to Know.” April 22, 2010. (Oct. 19, 2014) http://www.bankrate.com/finance/credit-cards/what-is-a-credit-score.aspx
• Brackel, Christine. “Using Gift Money for Your Down Payment: What You Need to Know.” Quicken. May 22, 2014. (Oct. 19, 2014) http://www.quickenloans.com/blog/gift-money-down-payment
• DeBord, Sam. “The Impact of School Districts on Real Estate Prices.” Realtor.com. (Nov. 12, 2014) http://www.realtor.com/advice/the-right-school-district-how-much-do-schools-affect-real-estate-prices/
• Dratch, Dana. “6 Essential Steps to Buying a New Home.” Bankrate. (Oct. 19, 2014) http://www.bankrate.com/finance/mortgages/6-must-dos-before-buying-a-home-1.aspx
• HGTV Frontdoor. “10 Things Every First-time Homebuyer Should Know.” (Oct. 19, 2014) http://www.frontdoor.com/real-estate/10-things-every-new-homebuyer-needs-to-know
• Holden, Lewis. “4 No or Low Money Down Mortgages.” Bankrate. (Oct. 19, 2014) http://www.bankrate.com/finance/mortgages/4-mortgages-that-require-little-money-down-1.aspx
• Williams, Geoff and Annalisa Burgos. “What You Need to Know Before Buying Your First Home.” HGTV FrontDoor. (Oct. 19, 2014) http://www.frontdoor.com/real-estate/what-to-know-before-buying-your-first-home
• Zykor Homes. “Seller’s Market vs. Buyer’s Market: What’s the Difference?” June 11, 2014. (Oct. 19, 2014) http://www.zykorhomes.com/difference-between-sellers-market-and-buyers-market/

FAQ

1. What’s your budget?

Before buying your first home, it’s important to determine your budget. Consider your income, expenses, and debts to determine how much you can afford to spend on a home. Don’t forget to factor in additional costs such as property taxes, homeowner’s insurance, and maintenance expenses.

2. What’s your credit score?

Your credit score can impact your ability to secure a mortgage and the interest rate you’ll receive. Check your credit score before applying for a mortgage and take steps to improve it if necessary.

3. What’s the state of the housing market?

Research the housing market in the area you’re interested in buying a home. Are homes selling quickly or sitting on the market for months? This information can impact your negotiating power and the price you’re willing to pay for a home.

4. What’s the condition of the home?

Before making an offer on a home, have it inspected by a professional. This can reveal any hidden issues or necessary repairs that may impact the value of the home.

5. What’s the neighborhood like?

The neighborhood you choose can impact your quality of life and the value of your home. Research the local schools, crime rates, and amenities to ensure it’s a good fit for you.

6. What type of mortgage is best for you?

There are several types of mortgages available, including fixed-rate, adjustable-rate, and government-backed loans. Research your options to determine which one is best for your financial situation.

7. What are the closing costs?

Closing costs can add up quickly and include fees such as appraisal, title search, and attorney fees. Make sure you understand the total cost of closing before finalizing your purchase.