Tips for First-Time Home Buyers
Being a first-time home buyer is exciting! But I know it can also feel overwhelming—especially when you see median listings priced at $306,000 and available homes flying off the market in 70 days.
With real estate trends like those, you might be tempted to make an impulsive purchase that could hurt your financial goals and keep you paying a mortgage well into retirement.
No one wants that! Trust me, you guys, it’s worth doing this the right way. And that means buying a home that you love and that doesn’t hurt your future money goals.
You may be thinking: Yeah, that would be great, Nadia. But where do I even start?
I’m so glad you asked! I’ve put together some good tips for first-time home buyers as they tackle the home-buying process. Put these into practice today so your first home is a blessing not a burden.
1. Pay Off All Debt and Build an Emergency Fund
Owning a home is expensive—much more expensive than renting, even if your monthly house payment will be similar or cheaper than your current rent amount. That’s because when you own a home, you’re responsible for all the maintenance and upkeep costs. And those can add up fast! So, before you even think about buying your first home, make sure you’re debt-free and have an emergency fund of three to six months of expenses in place.
When you get into a home with no payments (besides the mortgage) and have a nice big emergency fund, you’ll have the cash to pay for huge expenses that suddenly come your way. You’ll be able to love the life you’ve set up for yourself because stress and worry won’t be part of the equation!
Now once you’re debt-free, I want you to stay debt-free. So, as you’re shopping for your first home and getting excited about decorating and filling it with new furniture, be mindful of your budget.
You might have some empty rooms for a little while, but your budget and your future selves will thank you! And if you find yourself thinking, Oh well, I’ll just put it on credit—stop right there! Debt is dumb. Plus, taking on new debt in the middle of buying a house could delay your approval for a mortgage and make you miss out on the perfect home. Don’t do it!
2. Determine How Much House You Can Afford
Before you get emotionally attached to a beautiful house, check your monthly budget to determine how much house you can afford. You need to leave room in your budget for other things, so make sure your monthly housing costs (including HOA fees, taxes, insurance, etc.) are going to be no more than 25% of your monthly take-home pay.
For example, let’s say you bring home $5,000 a month. Multiply that by 25% to establish your maximum monthly house payment of $1,250. Based on a 15-year mortgage with a 4% fixed interest rate, here are the home options you can afford (not including taxes and insurance):
- $187,767 home with a 10% down payment ($18,777)
- $211,238 home with a 20% down payment ($42,248)
- $241,415 home with a 30% down payment ($72,424)
- $281,650 home with a 40% down payment ($112,660)
That’s an easy way to find a number in your ballpark. But don’t forget that property taxes and homeowner’s insurance will affect your monthly payment. You’ll also need to factor those numbers in before settling on a maximum home price.
3. Save a Down Payment
If saving up to pay the total price of a house in cash isn’t reasonable for your family’s timeline, at least save for a down payment of 20% or more. Then you won’t have to pay for private mortgage insurance (PMI), which protects the mortgage company in case you can’t make your payments and end up in foreclosure. PMI usually costs 1% of the total loan value and is added to your monthly payment.
If a 20% down payment seems out of reach for you, first-time home buyer programs that offer single-digit down payments may sound tempting. But don’t do them! These options will cost you more in the long run.
4. Save for Closing Costs
Along with your down payment, you’ll also need to pay for closing costs. If you’re a first-time home buyer, you may be wondering how much it costs to close on a house. On average, closing costs are about 3–4% of the purchase price of your home. Your lender will give you a specific number so you know exactly what to bring on closing day. These fees pay for important steps in the home-buying process, including:
- Appraisal
- Home inspection
- Credit report
- Attorney
- Homeowner’s insurance
Let’s see how this plays out with our example of a $172,600 home. If you multiply $172,600 by the higher 4% closing cost average, you’ll find that you need $6,904 for closing costs. Now let’s add that to your 20% down payment of $34,520. The two together equal $41,424, which is about what you’ll need to save to pay for the down payment and the closing costs on your first house.$172,600 x 4% = $6,904$6,904 + $34,520 = $41,424
You want to save for your closing costs and down payment as quickly as possible—with the same amount of intensity I tell people to use when they’re getting out of debt and building a full emergency fund. In fact, it’s okay to put retirement savings on hold for a short period of time to save for a home—but you’ve got to hustle!
Pick up a second job, sell whatever isn’t nailed down, move into a smaller space, add a roommate and charge rent—do whatever you need to do to save for your closing costs and down payment as fast as you can.
5. Get Preapproved for a Loan
Once you’re confident you have enough cash saved to pay for closing costs and 20% of your home, you’re ready to handle the other 80% by talking to a mortgage lender.
Get prequalified for a loan and take the extra time to get a preapproval letter before you start your home search. Preapproval shows sellers that you’re a serious buyer, which is a great way for first-time home buyers to get ahead in a competitive market.
To get preapproved, your lender will need to verify your financial information (proof of income, taxes, etc.) and submit your loan for preliminary underwriting.
Please call me, I will be happy to help on getting pre-qualified for a home, Call or Text (760)391-1741 or send an email: nadia@usdesertrealty.com
6. Find a Home for Sale in Your Price Range
As your Realtor of choice and after I have a good idea of what you’re looking for I will find a home that will fit your life, As a Realtor I have access to multiple listing service (MLS) to find homes that meet your criteria in your desired areas.
An MLS is created, maintained and paid for by real estate professionals to help buyers view the largest pool of properties for sale in the marketplace. Real estate agents also provide valuable market expertise and can help you find great deals on homes as soon as (or before) they’re listed.
7. Make a Competitive Offer (That’s Within Your Budget!)
Let’s say you found the home you want and can afford. Since you’re already preapproved for a loan, you’re ready to make an offer. If you’re a first-time home buyer, it may be hard to know how much you should offer. That’s when you can rely on my expertise.
As your agent I will help you make sure your offer is competitive but also within your budget and the home’s value. Be careful not to make an impulsive offer that’s higher than you can afford just to knock out the competition.
8. Prepare for Closing
Once a seller accepts your offer, the closing process will begin. Keep things running smoothly by knowing what to expect when closing on a house. The average closing process takes 41 days, which gives you plenty of time to tackle closing items. As your agent, I will schedule the remaining steps, from home inspection to final walkthrough, and keep you informed about any road blocks.
As you prepare for closing, make sure you read every document and ask me to explain anything you don’t understand—especially before you sign the official contract for the home transaction. It’ll be your signature on the documents, so you’ll be the one responsible for anything you sign.
Ready to Get Started?
Please call me, I will be happy in finding and helping you get your dream home, Call or Text (760)391-1741 or send an email: nadia@usdesertrealty.com
