Buying your first home is a huge part of the American Dream — and is also a daunting and potentially overwhelming process that’s ripe for second-guessing everything you know. How do you know you’re ready? How can you prepare yourself financially? What do you even want to buy, and where? It’s only natural that buying your first home would feel like a huge process: This is probably the biggest purchase of your life to date.
WHAT DO YOU WANT TO BUY?
Consider the type of property. For example, if you are a first-time buyer who’s thinking about renting out part of your new home to help pay the mortgage, then you should look at duplexes or other multi-family units.
If you plan to live in the unit yourself, you can finance it as your own property, get the same homeowners’ insurance rates as owner-occupiers receive, and maintain a separate space to rent.
There are also condos and apartments, new construction and single-family homes. If you need help figuring out what’s available and what’s a good fit, talk to one of our real estate agents, who can walk you through the common opportunities in your area and help you pick one or two that fit your lifestyle best.
WHERE DO YOU WANT TO BUY?
Know where you want to go. Maybe you’ve narrowed your search down to one metro area, or maybe you know exactly which neighborhood is the best fit for you. Spending some time to research the parts of town where you might be moving in and buying is a smart thing to do, even if you’re positive that you already know everything about the area.
Talk to friends who live in the area and ask them what they like and dislike about the neighborhood. Ask yourself how similar your lifestyle is and whether those likes and dislikes are relevant to you. If you can, look up suburb-specific and neighborhood-specific Facebook groups where you can lurk and figure out what the neighbors are like. This would also be a good opportunity to bring in one of our real estate agents who’s familiar with your area of interest and also show you other parts of town that you might not be currently considering.
Try to predict the neighborhood’s future. It is smart to get an idea of what the neighborhood is like today — and to spend some time trying to predict where it might go in the future. Local chambers of commerce or business journals can be good resources for this kind of research. Look at the types of businesses that are most prominent in the area and do a little bit of digging into the most popular industries.
You should also ask about future plans for the neighborhood, like public parks, playgrounds, or any new businesses that are likely to emerge near you.
What is your credit score? If you don’t know, or if it’s below 580, then you have some work to do before you can get ready to finance a home.
Obtain a copy of your credit report and check it for errors. Correct them. Then take it to a credit counselor and ask them for the two or three biggest-impact tasks that you could complete, then start working on them.
There are options for obtaining a loan if your credit’s not the best, but every little upward tick helps, so try to get it in decent shape before you start seriously home-shopping.
Go big on your down payment. The down payment can be a daunting piece of the home buying puzzle for many first-time buyers, who don’t have equity in their current place of residence (because they’re renting) and might not have much disposable income to save. That said, if you’re paying less than 20 percent down, most mortgages will also require you to pay mortgage insurance on the loan. So if it’s at all possible to get close to that 20-percent number, it’s a really good idea to try. Several organizations offer resources and even down payment grants for certain buyers. Find out what you might qualify for at downpaymentresource.com.
HOME PURCHASE EXPENSES
Consider your total monthly out-of-pocket amount. You just learned about mortgage insurance, which is one additional monthly expense that you could wind up paying over the lifetime of your mortgage if you don’t have a full 20-percent down payment. In addition to that, you’ll need to pay for basic homeowners’ insurance (and any additional policy coverage, like for floods), property taxes, and the interest on your mortgage loan every month. Along with home maintenance expenses and regular utilities like internet, phone, and other connectivity features you might need in your new place.
Understand what you can afford and get pre-approved. It’s probably tempting to start searching for homes as soon as you think you know what you want and where you want it — but there’s another very important component, which is what you can afford.
Try to steer clear of any programs or apps that pre-qualify you for a mortgage loan instead of pre-approving you for a loan. A pre-qualification is a less formal guess as to what you might qualify for, but a pre-approval means you have submitted all your income paperwork and a lender has decided that it will loan you money for a mortgage in a specific dollar amount. It means you can put in an offer immediately when you find your dream home instead of waiting to jump through any financing hoops.
If you are considering your options to becoming a homeowner do not hesitate to reach out to one of our highly qualified real estate agents for assistance and schedule your free buyers’ consultation. Call us at 305-809-7650. We will provide you with up-to-date market advice to make sure you’re making the right move.