Planning on buying a house for the first time? Considering your very first home mortgage? Then you definitely want to take a look at these first time home buyer tips to help you save time and money when buying your first home.
After all, it’s an exciting time!
No more living with your parents or paying rent to dodgy landlords!
But sometimes the excitement can make you get a bit ahead of yourself.
If you can feel yourself getting a bit too eager, take a few breaths. After all, this may be the biggest expense you’ll ever incur.
This means that it’s best to go into the home buying process with a clear, logical head.
So before you start planning that first trip to Ikea to furnish your brand new digs, take a look at this new home checklist to see all the things first home buyers should know.
These tips for how to buy your first home will show you exactly what you should be doing to make sure you’re saving yourself as much time and money as possible – including by avoiding the mistakes that many before you have made.
First time home buyer tips (aka home buying for dummies)
1. Start saving for a down payment as soon as possible
As soon as you start to think that you may want to buy a house in the future, it’s time to start thinking about how to save up for a house deposit.
After all, while the general rule is to have at least a 20% down payment saved, some loan programs do allow you to have as little as 3% or even zero in some cases.
While that may sound great, it can cost you significantly more in the long run. For example, if you buy a $300,000 home with a 20% down payment, that’s $60,000 that you have to save.
But assuming a 30 year mortgage at 4.5% per year, you’ll spend $197,776.11 on interest over the life of the loan.
Compare that to if you have no down payment, which will result in you paying $247,220 in interest or almost $50,000 more for your home.
There’s a great, simple calculator here if you’d like to check for yourself just how much your mortgage will cost you based on how much you can pay upfront.
And this first time home buyer down payment calculator will show how much you can borrow, including first time buyer mortgage rates.
Keep in mind though that if you decide to wait until you’ve saved more for buying, this has to be balanced against the fact that housing prices may increase in the time it takes you to save for a down payment.
This could then make it harder to buy a home, not to mention the lost equity.
There’s no easy answer here in terms of timing. Safe to say, the earlier you can save your down payment, the better.
Don’t panic though if you feel like it’s taking you too long. NerdWallet conducted a survey with the result that millennials who had bought a home in the previous five years took an average of 3.75 years to save enough to buy.
So you definitely still have time – which is time that may, in the long run, save you a boatload of money.
And in case you haven’t heard, when figuring out how to save for your first property, the best first step to take is to make sure that you have a budget.
2. Check your credit report and fix any errors as soon as possible
Mortgage lenders will rely on your credit report when figuring out how much to offer you and how much interest to charge.
This means that any errors on your credit report could result in you being quoted a much higher interest rate or being offered a much lower mortgage than you’d otherwise get.
Unfortunately, mistakes can happen so it’s good to be aware of these as early as possible, given that they can take some time to fix.
(This isn’t only one of the best home buying tips you’ll need – it’s also a great tip to follow if you’re not looking to buy a house soon!)
That way, you’ll know exactly where you stand in terms of your credit and can start taking steps to improve your position immediately, such as by fixing any mistakes but also by paying off as much of your debt as possible.
3. Keep some money set aside for closing costs, moving costs and any after move-in expenses
The last (of many) steps to buying a house isn’t simply paying the house price. There are taxes and fees to consider, moving costs and, inevitably, maintenance and repairs that your new home will need sooner than you probably like.
So if you use every cent of your savings for your down payment, you’re more than likely going to have some nasty surprises when some extra expenses appear.
Your lender will let you know how much closing costs will probably be, so keep that amount to the side along with some extra funds.
You could even keep this money in a high-interest savings account like this one to earn you a few extra dollars while you’re waiting for the whole process to go through.
4. Look into first time home buyer programs
Coming up with a down payment can be tough (even with first time home buyer tips for saving for a home like this) so make sure you look into any federal state and local programs that may be able to assist.
These government programs make it easier for you to buy a home with either a low or even no down payment. For example:
- FHA loans: The Federal Housing Administration’s program allows for down payments as little as 3.5% and can be great if you have some credit issues.
- VA loans: The loan program managed by the Department of Veterans Affairs is for people who have served in the military and allow for 100% financing. That is, no down payment needed.
- USDA loans: The Department of Agriculture can help you if you’re looking to buy a home in a rural area. No down payment is needed and you simply have to pay an annual fee instead of mortgage insurance.
Many US states also have programs for first time home buyers to assist you with your down payment or closing costs or to provide discounted interest rates.
Do some research but also ask your mortgage lender, who’ll also have useful information based on your specific circumstances.
5. Work out exactly how much your first home mortgage can be
Here’s one of the first time home buyer tips that may be a bit of a downer but will save you a ton of time:
There’s no point even thinking of how to buy a house until you know exactly how much you can afford.
Not only is it a waste of your time, but you’re setting yourself up for disappointment if you can’t afford your dream home.
So before getting started, take a look at this home affordability calculator to find out your ideal price range – particularly to help to avoid mortgage stress in future by helping you to avoid taking on too much debt.
6. Get more than one mortgage quote
This if one of those house buying tips that’s so obvious because it applies to so many other big purchases in your life. But a lot of people don’t even factor this into their steps to owning a home.
To put it simply: you wouldn’t buy a car based on asking at just one dealer, would you? The same applies for your mortgage.
And it can save you a good chunk of money.
The Consumer Financial Protection Bureau (CFPB) reports that almost half of new home buyers don’t shop around for a mortgage when purchasing a home.
Significantly, the CFPB also found that getting quotes from at least three lenders can save you more than $3,500 throughout the first five years of your mortgage.
This means that it’s definitely in your best interest to shop around.
And if you’re worried about the effect of this on your credit, note that multiple inquiries from mortgage lenders made within 45 days of one another are treated as only one inquiry.
So don’t listen to any first time home buyer tips that tell you to stick with one lender. That loyalty will only cost you money in the long run.
7. Get a pre-approval letter
When going through your first house checklist, make sure you’ve got “pre-approval” and not only “pre-qualification” on the list.
Being pre-qualified for a mortgage simply involves getting an estimate of how much a lender may be willing to offer based on your financial situation.
Pre-approval, on the other hand, involves the lender confirming in writing how much they’re willing to lend to you and the terms that will apply.
This can be great to have if you’re getting serious about making an offer as the seller will know that you mean business. This is especially good if there are other interested parties, as it could give you the upper hand when a seller is considering multiple offers.
8. Negotiate before buying your first home
Negotiating can be scary, especially if you’re a first time home buyer who’s worried that you don’t really know what you’re doing.
Firstly, none of us do. So here’s one of those first time home buyer tips that can be used in life in general:
Fake it till you make it.
Secondly, and more importantly, negotiating is part of the game. Unless you live in an area where the real estate market is exploding, housing prices are set on the understanding that offers will be made that are usually lower than the stated amount.
So don’t be worried that you’ll be immediately dismissed for negotiating an offer. If anything, it shows a seller that you’re serious about buying as you’re committing the time to try to reach a deal.
And negotiating doesn’t only mean the house price. You can also negotiate things like the seller being responsible for completing some repairs before handing over the house or offsetting the cost of the repairs against the house price.
You can also try to negotiate sharing things like the closing costs. These are more likely to be accepted where there’s more supply than demand, so consider the market you’re in before asking for things like this.
But as negotiating can save you literally tens of thousands of dollars on your house buying budget, you should absolutely do it if you’re serious about buying a house.
9. Take out suitable homeowners insurance
Your lender will let you know that you need homeowners insurance before the purchase of your new home is finalised, not only before moving into a new house, so make sure you shop around to get a good deal.
(This article has some great first time home buyer tips on exactly how to do that.)
Paying less for a policy may not necessarily be the best idea, especially if you’re not sufficiently protected as that could mean that you could end up paying more than you can afford if you have to file claim. So read the policy information closely and consider your circumstances.
Keep in mind as well that homeowners insurance doesn’t cover flood damage, so if you’re in an area that floods, look into a separate policy for that to avoid major problems in future.
First time home buyer tips of things to avoid
10. Don’t apply for credit until the sale is final
It’s of critical importance to make sure that you leave your credit alone during the period between applying for a loan and getting the keys to your new home.
That means no new credit card and no new car.
This is because the lender will basing their mortgage decision on your credit score. If you apply for credit, this essentially shows the lender that you’ll likely have more debt in the near future, meaning that less of your income can go towards paying off the mortgage. Unsurprisingly, lenders don’t really like this.
Keep in mind as well that the lender doesn’t only check your credit at the start of the process – they also check about a week before closing. So you need to make sure that your credit score hasn’t dropped in that entire time.
So hold off on any major purchases until your most major purchase has gone through, ok?
(And don’t forget that you can check your credit score for free here.)
11. Don’t underestimate how much owning a home really costs
It can be easy to think that you’ll “only” be responsible for your mortgage payments.
But here’s one of the most important house hunting tips: don’t forget that you’ll now be responsible for the usual bills along with a whole range of other things, like land taxes, home association fees, council fees and insurance.
And that’s not to mention repair and maintenance costs for your home, which you may not have been responsible for before if you were renting.
To avoid any nasty surprises, ask the real estate agent to give you an idea of the taxes and other fees involved in owning your new home. You may also wish to ask to see the existing owner’s utility bills over the past year, especially to get an idea on how much things like electricity and heating/cooling will cost.
And for any maintenance and repairs that are needed, get multiple quotes. These costs can quickly add up, so you definitely want to shop around.
(That also belongs under the category of “all home owners tips”, not only first time home buyer tips!)
12. Don’t borrow more than you have to
It can be tempting when seeing that big number that your mortgage lender is offering to suddenly imagine the mansion that you’re soon going to be living in.
But don’t forget that the bigger the mortgage, the bigger the repayments.
And if your financial situation suddenly changes, like there’s a medical emergency that increases your expenses or a financial downturn and you or your partner lose your job, those mortgage repayments are going to be the cause of a huge amount of stress.
After all, debt is the leading cause of relationship stress and makes you twice as likely to suffer from depression.
So reducing your debt as much as possible – even when it’s so-called “good debt”, like a mortgage – may be life-changing for you and your family and in future.
And of course, the smaller your mortgage, the sooner you’ll pay it off and the sooner you’ll be financially free!
MORE INFORMATION: FAQs ON GETTING OUT OF DEBT ASAP
13. Don’t be afraid to ask more questions during the inspection
Part of buying a home is paying for a home inspection to make sure the building is fine both inside and out. And making sure you get a good inspection is one of the most important real estate tips out there.
However, it’s a good idea to pay close attention to what your inspection does and doesn’t include.
For example, did it cover pests or mold? Was the inspector able to get into all of the tight spaces, like into the roof?
Similarly, you’re definitely allowed to ask the inspector to look at something more closely, so don’t be afraid to do so.
Not asking a key question now could cost you thousands in future, so it’s better to know as much as you can now.
That way, you can make the biggest financial decision you’ve probably ever made at that point – should you go ahead with buying your new home!
When are you planning on buying your first home? Or if you’re already there, what’s one of the best first time home buyer tips you heard?