How to Become a Homeowner: 5 Tips For First-Time Buyers
Preparing to buy a house is one of the most exciting times in your life. It’s also one of the most confusing and stressful times in your life. There’s so much you need to know, and you need to learn it all quickly! If you don’t, you could end up making costly mistakes that could impact your life and finances for a long time to come.
Overwhelmed yet? Of course, you are! But don’t worry. We’re here to give you insider tips about how to become a homeowner that makes the whole process much less intimidating.
- Know Your Budget… and be Realistic!
The biggest mistake that many first-time homebuyers make is not understanding their budget.
Consider All the Costs
Sit down and crunch all the numbers. List all your expenses, all your debt, and compare that to your income. Once you’ve looked at your budget, be realistic about what you can afford.
Remember that paying for your house is much more than just paying the mortgage. There are taxes, homeowner’s insurance, and possibly association fees, depending on your neighborhood and the type of home you’re buying. Make sure to include these costs when figuring out how much house you can afford.
A good benchmark to use is the 28/36 rule. The monthly costs for your house shouldn’t total more than 28% of your monthly income. And your housing costs shouldn’t represent more than 36% of your total debt.
You also need to consider money for the down payment, closing costs, and any repairs that may come up as a result of the inspections that the seller isn’t willing to cover.
Shopping Within Your Budget
For most people, once the numbers are down on paper, they discover they can’t afford nearly as much as they thought. This can be really disappointing, but it’s better to know.
Do yourself a favor and don’t even look at houses before you do a deep dive into your budget. Even if you think you have a good idea of your finances, look at everything again before you spend hours scrolling through Zillow. If you don’t, you’re going to look at houses outside your price range and get very disappointed. Or worse, you’ll convince yourself that you can afford that dream house when you really can’t.
- Get Preapproved for a Mortgage
Knowing how much house you can afford isn’t the same as knowing that you can get approved for a mortgage. Even if your finances are in good shape, you might run into issues getting a mortgage. You might not be able to get approved for as much as you expected, which will limit how much house you can afford.
So, once you’ve looked at your budget, it’s time to get preapproved for a mortgage. Preapproval is the best way to know which houses are in your price range because you know for sure that you can get a mortgage for that amount.
Before you start talking to lenders you should know your credit score, your debt to income ratio, and gather all your financial information into an accessible file. The preapproval decision will be made based on these factors, so if you’re familiar with all this information you’ll be more prepared for the process.
One mistake that many first-time homebuyers make when getting preapproved is only talking to one or two lenders. To get the best mortgage preapproval, you should be talking to as many lenders as possible. It takes a lot of effort, but it’s worth it to ensure you’re getting the best deal possible.
Remember that a preapproval isn’t a guarantee. It’s more information to help you with the home buying process.
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- Know What’s Important to You
Now that you’re clear about your budget and you’re preapproved for a mortgage, it’s finally time to start looking for a house!
While you’re browsing all those listings, it’s important to be clear about what you and your family want and need from your new home. Functional things like the number of bedrooms and bathrooms, the size of the yard, and the utilities are certainly important.
But there’s way more to consider. What’s the neighborhood like? How good are the schools? What are the property taxes like and are they likely to go up? What is there to do in the town?
Many people fall in love with a house without giving enough consideration to the town, the neighborhood, or public services. They end up in their dream home, but in an area they don’t like.
So, remember that it’s not just about the house, it’s about building a new life in a new place.
- Become an Expert Negotiator… or Hire One
Buying a house involves so much negotiation. Most houses don’t sell for their asking price. You’ll make an offer, the seller will make a counter-offer, you’ll counter that offer. And you’ll be competing with all the other offers they’re getting!
Lots of homes need work before they can be sold based on the inspection. Negotiating who pays for this work and how that impacts the sale price of the house can be an incredibly stressful process.
If you’re handling the buying process yourself, you’ll need to be an expert negotiator. A much better idea is to work with a realtor who will handle these negotiations for you for a fee.
- Be Willing to Walk Away
The hardest part of the home buying process is being willing to not buy the house.
Often, people fall in love with a house and their emotions take over the buying process. This is a one-way ticket to the danger zone. When your emotions rule the house buying process you’re guaranteed to make a mistake. You might be convinced to buy out of your price range or pay for repairs you shouldn’t pay for or pay way above asking price.
If negotiations aren’t going your way, if incidental costs are racking up, if you can’t beat another offer, you need to be willing to not buy that particular house. You need to be willing to walk away from any house, even your dream house.
The right house for you will come. When it does, you’ll thank yourself for walking away.
More Advice About How to Become a Homeowner
These tips are just the basics of how to become a homeowner for the first time. There’s so much to consider when buying your first home that we couldn’t possibly include it all in one blog post.
So, if you’re looking for more information about buying your first house, check out the posts tagged Home.