As agents we often get a variety of questions about our business. Questions such as; "What is the El Dorado Hills and Sacramento housing market like?", "What do you think my home is worth?", "What can be done to add more value to my home home?", etc. Lately we have been working with quit a few first time home buyers and for anyone who can remember the experience of buying their first home, they know it can be a very confusing and at time daunting. So for this post we thought we would bring it back to the basics and list of 24 tips/steps for someone thinking about buying there very first home.
1. Determine how much home you can afford
Before you begin searching for your dream home, you will need to discover what is your price range. Use a home affordability calculator to determine how much you can comfortable afford to spend on a home.
2. Begin saving for a down payment early
It’s common to put 20% down, for a conventional loan, but many lenders now permit much less, and first-time home buyer programs allow as little as 3% down. However it is important to note that putting down less than 20% could mean higher costs, including paying for private mortgage insurance and even a smaller down payment can still be hefty. For example, a 6% down payment on a $200,000 home is $12,000.
This handy tool can help you figure out what your down payment could be down payment calculator. Some good ways to save for a down payment include setting up an automatic saving plan and setting aside tax refunds and work bonuses.
3. Check your credit
Credit is very important when trying to get approved for a loan. It will be one of the key factors in wither you will be able to finance your new home. It will help determine your interest rate and possibly the loan terms.
So you may want to check your credit before you begin the home buying process. More often your bank will be able to provide you this information safely and penalty free. By checking before it will allow you to dispute any errors that could be dragging down your credit score and also find opportunities to improve your credit, such as lowering any outstanding debts.
4. Stop any new credit activity
Any time you open a new line of credit, whether to take out an auto loan or get a new credit card, the lender runs a hard inquiry, which can temporarily lower your credit score. If you’re applying for a mortgage soon, avoid opening any new lines of credit to keep your score from dipping.
5. Explore your down payment options
Struggling to get enough money together for your down payment? They are many First-time home buyer programs, including federal mortgage programs with Fannie Mae and Freddie Mac that allow loans with only 3% down.
Other low down payment options include:
- FHA Loans, which permit down payments as low as 3.5%.
- VA Loans, which sometimes require no down payment at all.
- You could also try crowd funding or asking family members if they could help out by gifting some money.
6. Don't forget to budget for closing costs
On top of saving for a down payment, you’ll need to factor in the money needed to close your mortgage, which can be substantial. Closing costs generally run between 2% and 5% of your loan amount.
7. Set aside more money for moving and after move-in expenses
Unfortunately, that’s not all you need to save up for before home shopping. Once you’ve saved for your down payment and for closing costs, you should also set aside some funds to pay for moving cost as well as anything you may need that will go inside the house. Including furnishings, appliances, rugs, updated fixtures, new paint and any other personal touches you’ll want to have when you move in.
8. Consider what type of property to buy
You may assume you’ll buy a single-family home, and that could be ideal if you want a large lot or a lot of room. But if you’re willing to sacrifice space for less maintenance and extra amenities, and you don’t mind paying a homeowners association fee, a condo or townhome could be a better fit.
9. Research mortgage options
Is a 30-year, fixed rate mortgage a given, or is another loan type right for you? If you can afford larger monthly payments, you can get a lower interest rate with a 20-year or 15-year fixed loan. Or you may prefer an adjustable-rate mortgage, which is riskier but guarantees a low interest rate for the first few years of your mortgage.
10. Decide if paying points makes sense
Lenders often give you an option to buy discount points, which means prepaying interest upfront to secure a lower interest rate. There could also be an option for negative points, in this case the lender pays some of your closing costs in exchange for a higher interest rate. It is important to consider how long you plan to stay in the house when thinking about whether or not to buy points. You’ll need to do some calculations and speak to a mortgage broker to help you decide if buying points is worth it for you.
11. Get a Preapproval Letter
Getting prequalified, simply gives you an estimate of how much a lender may be willing to lend you based on your income and debts. But as you get closer to buying a home, it’s important to get a preapproval, this is when the lender thoroughly looks into your finances and confirms in writing, a preapproval letter, how much it’s willing to lend you and at what terms. Having a preapproval letter along with your offer makes you look more serious to a seller and is more often than not expected to be presented at the same time as the offer to the seller.
12. Hire the right real estate agent
This person will be your point of contact through the whole process. So it is very important to hire someone trustworthy will extensive knowledge of the business, market and area. Obviously I think the Putman Team is the best option! We have helped hundreds of people find their dream homes, many of whom were first-time home buyers!
13. Stay under your preapproval limit
Look for properties that cost a little less than the amount you were approved for. Although you can technically afford your preapproval limit, it’s the ceiling — and it doesn’t account for any other expenses that arise during home ownership.
14. Choosing the right neighborhood
Locating the right neighborhood is just as important if not more than finding the right house. Look into the schools, even if you don’t have children, since this can affects a home’s value. Research local crime statistics. How far are the nearest hospital, pharmacy, grocery store and other amenities you’ll use? Also, it is a good idea to drive through the neighborhood on various days and at different times to check out traffic, noise and activity levels.
15. Buy a home for the future
Buyers often look at properties that meet your their current needs or wants. But is important to look forward as well, such as if you plan to start or expand your family, it may be preferable to buy a larger home you can grow into. Consider your needs and wants for what may lies ahead and whether this home will suit them.
16. Don’t sweat the small stuff
When you’re looking at a home, it’s easy to get dwell on the small stuff such as superficial details like paint color, fixtures and carpets. These aspects of a home are easy to change once the home is yours, so don’t let those little things get in the way of the bigger picture.
17. Be prepared to compromise
It’s almost impossible to find a house that’s perfect in every way, so think carefully about what truly important and what you are willing to compromise on. Perhaps a kitchen pantry is not a deal breaker but having a lawn in the backyard is. Way pros and cons
18. Be sure to make a strong offer
You real estate agent can help you with this, but consider how much you’re willing to pay to obtain your dream home. If there are multiple offers, think about ways to win over the seller, such as a personalized letter about yourself and why the home they are selling is the perfect place for you.
Almost everything is up for negotiation in the home buying process. This can often result in major savings. Consider if there are any major repairs you can get the seller to cover, either by fixing the problem or by giving you a credit at closing? Is the seller willing to pay for any of the closing costs? etc.
20. Buy homeowners insurance
Before you close on your new house you will want to purchase homeowners insurance. Look closely at what’s covered in the policies; going with a less expensive policy usually means fewer protections and more out-of-pocket expenses if you file a claim. Be aware that your insurer can drop your property if it thinks the home’s condition isn’t up to snuff, so you may have to be prepared to find a new policy quickly if it sends someone out to look at the property and isn’t happy with what it finds. Also, flood damage isn’t covered by homeowners insurance, so if your new home is in a flood-prone area, you may want to buy separate flood insurance.
21. Home inspection
Once your offer is accepted, you’ll pay for a home inspection to examine the property’s condition inside and out. Be there if you can for this so that you can walk through the property with inspector and they can show you problem areas. Read through the whole report and write down important items you would like the sellers to fix. Make sure to put down health and safely items at the top of your list.
You will need to have an appraisal done as part of your loan process. The appraiser will evaluate the property, compare it to other sold homes around it and walk the property to establish a value. In order for bank approval the appraised value must be at asking price or greater.
23. Be aware of your contingency period:
The contingency period is laid out on the purchase agreement. It is an agreed upon number of days to 1. receive all necessary disclosure regarding the property, 2. get all inspections completed and agree upon what will be requested of the seller to repair and 3. lastly to get full loan approval.
24. Final walk through and close of escrow:
The final steps before receiving your keys to your new home will be the final walk through and signing of loan docs. You will want to walk through the property before the close of escrow to insure it is in the same condition as when you purchased it. This is also an opportunity to check in on the repairs the seller contractually agreed to fix. You will then go to the Title Company and sign all the loan documents. After this and transfer of fund. It will be recorded and the HOME WILL BE YOURS!!!