You are thinking you may want to buy a house. What should first time home buyers know?
Many people buy a house very few times in their life. Its a big decision and lots of money is involved. Home buying for anyone can be a stressful process, but can certainly be full of missteps for a first time home buyer.
Buying a home can be complicated on many levels. First their is the legal side of buying the home. Then there is actually looking for homes that suit your needs but are also a good purchase financially. Finally there is a myriad of due diligence and paperwork that needs to be tracked. Making a mistake can cost you thousands.
What Are Some Things I Need To Know Before Buying My First House?
When your buying your first house you will get out of it what you put into it. Take the time to do your research and take the proper steps and work with professionals along the way. Here are some things to consider if you are going to become a first time buyer.
At The First Thought Of Buying Check Your Credit
Have a mortgage lender pull your credit or get your annual free credit report though www.annualcreditreport.com. Your credit score or FICO affects many things during your home purchase.
Your credit score determines your interest rate on a home mortgage, as well as rates for Private Mortgage Insurance and Homeowners Insurance. A home buyers credit score also dictates what loan programs are available to you. Almost every 20 points of credit score has a potential benefit for you.
And as a first time home buyer, you most likely are looking for low money down home loans. The best loan programs are reserved for buyers with the best credit. The best loan programs usually means the best interest rates, reduced or no private mortgage insurance and other money saving features.
By pulling your credit early, it allows you to fix any errors on your credit. Which does happen more than you think!
It also allows you to work on raising your credit score sometimes by making some small adjustments. Often, just paying down a line of credit a small amount can drastically improve your score. This year alone, I had one client raise their credit score 111 points in 60 days and another raise theirs by 60 points saving both hundreds of dollars in mortgage payment.
My word of caution is don’t think you can fix your credit on your own. Consult with someone who knows what they are doing. Your mortgage lender can be a great resource. Many of them have a tool called Credit Xpert which identifies and simulates what certain changes will have a positive impact on your credit score.
Buying A Home Is A Commitment
Realize buying a home is a commitment. You can’t just pick up and leave like you can when you are renting an apartment at the end of a lease. There are closing costs, real estate commissions and real estate market conditions to consider when selling. You need enough money to pay off your mortgage. And, that may take a few years of appreciation before you can break even.
So when buying your first home hopefully your job situation is stable allowing you to continue paying the mortgage into the future. But are you ready to settle into community, a neighborhood and even a particular home for the intermediate term?
Just because you have the means to buy a home, doesn’t mean you should if you are not ready. Be ready to make the commitment to set roots and own your own home.
Know The Finances
The very first step is to get pre-approved and know your numbers. Talking to a lender should be one of the very first steps that you take when you make the decision to buy your first home. Get a mortgage application in with a lender , and provide the preliminary documents like paycheck stubs, W2’s, bank statements etc….
A lender can not talk real numbers and scenarios with you until you do so.
Many first time home buyers will start their journey looking at houses first. Then they fall in love with a house only to start the mortgage process in a rush.
During the first process, learn what a mortgage will cost you per month, what you will need for your closing costs and the different variables that will affect your mortgage payment.
You will probably get pre-approved for more than you are comfortable paying. But at the end of the day you are the one paying the monthly mortgage. Make sure you are comfortable with the finances before looking at houses.
Have Extra Money Set Aside
When you are buying a home you are constantly thinking about the down payment and closing costs. But remember to save money for after your purchase.
If you are buying your first home you will need money for things like lawn mowers, snow blowers, etc… You also may need money for some unknown repairs. You are no longer going to pick up the phone and call the landlord when something breaks. Repairs and maintenance are completely on you.
Buy A Home For The Future Not Just Today
Its easy to think about your housing needs currently and buy a house for your immediate needs. But, think about your future housing needs as well. You want to buy a home that could suit your for 5-10 years if necessary.
Remember life can change quickly, as well as the real estate market has it’s ebbs and tides. If you buy a home and the real estate market softens you might not be able to get out whole for a few years. You need your home to have some flexibility.
Buying A Home Is About Compromises
Often a buyer starts the process with expectations and wants, fully expecting they can get everything they ever dreamed of. But for many, that is not a reality. Even with high end buyers, buying a home is about making compromises albeit very different than ones that a first time home buyer might make, but still, compromises need to be made.
It is important to get a handle on what is really important to you and where you can make compromises. This means getting a handle on the inventory in a certain community.
Maybe you will find you want more square footage and you are fine living on a busy road. Or you find to get a fully remodeled home you need to look at smaller homes rather than bigger homes that need work for the same price.
Remain flexible and adapt as you go through the first time home buying process.
Buy A Good House With Good Bones
It is very easy to get caught up in the new, the shiny and the sparkly. At the end of the day make sure you aren’t enamored by the glitz and buy a solid house that isn’t going to cost you a considerable amount of money int he near future.
It was nice the owner painted the cabinets and threw down a laminate floor and the installed the cheapest granite they could in the kitchen, but the windows need replacing, the roof is starting to leak and the furnace is on its last leg.
Its impossible to live with a leaking roof and a furnace that doesn’t work and difficult to put up with leaky windows stealing your hard earned cash in extra heating costs. But you certainly can live with an outdated kitchen indefinitely until the timing is right to do a proper remodel.
Look beyond the cosmetics of a home and concentrate on what is important.
Don’t Chase Unicorns
Once you make the decision to buy, don’t look for homes that don’t exist…. or as I call it chasing unicorns.
While it is one thing to waste some time looking for something that doesn’t exist, its another thing to lose good opportunities that are in front of you that exist here and now.
In the seller’s market we have been in, property prices are increasing about a half of a percent a month and interest rates are rising. 9 months of looking for a house that doesn’t exist can cost you dramatically.
For example a $300,000 house today could be worth $315,000 in 9 months.Top that off with a 1/4 of a percent interest rate increase and you have lost well over 6-7% in buying power.
Learn where your reality lies early on in the home buying process and focus on what you can get and not searching for what doesn’t. Once you decide buying is right for you, buy a home in a reasonable amount of time.
Work With A Buyer’s Agent
A buyer’s agent is an agent that works for you, the buyer. As a first time home buyer, definitely think about working with a buyers agent during your purchase.
In this day of the internet, anybody can find a home to buy. So why do you need an agent?
There is more to buying a home than finding a home on the internet.
An experienced buyer’s agents role is to guide and counsel. From making financial decisions, evaluating properties, negotiating on your behalf to more administrative task like keeping track of critical dates, tracking paperwork and money, scheduling and more, a buyer’s agent is with you every step of the way.
So you think the internet is going to answer all your questions?
Buying and selling real estate is dynamic, markets can change on a dime as well as how business is done. There are many articles on the internet that are old archaic ways of dealing with the various aspects of real estate. Use an experienced buyer’s agent to guide you through the home buying process.
Understand Who Is Working For Who
This goes along with buyer’s agency.
And, it is where many buyers get into trouble. They think every agent that talks to them is their agent. This is not true… at all. There are buyer’s agents, listing agents, dual agents, designated agents and facilitators and they all have a different legal role in how they interact with you.
But knowing who that agent owes an allegiance too is the tricky part sometimes. Before you go looking at houses make sure you know what the lawful agency relationships are in your state.
One of the biggest mistakes a buyer can make is buying a home at an open house thinking the agent works for them. In most circumstances that agent works for the seller. Their job is to sell the house to you and get the seller the best price and terms often to your detriment.
Would you think you could win a pick up game with a pro basketball player? Then how could you think you could come out on top against a professional real estate agent that does this day in and day out?
Forget What You Learned About Buying A Home On Reality TV
There is not much reality to the reality home shows. First I would be surprised if any buyer bought a home after looking at just three homes. More like a minimum of 8-15.
Unfortunately, many of these shows give a perception that it is so easy to move a wall and remodel, often with budgets that are not a reality here in New England. Yes, anything can be done but remember it cost’s money!
And, where will that money come from?
Don’t think spending big money renovating will return huge dollars. The renovations and big gains that are reported on these shows are unrealistic. At least in the greater Boston area.
They also leave out all the complexities and pitfalls that come with the process. And here in Tewksbury MA, a super hot real estate market, what about the buyers who lose 10 offers from underbidding before they get an offer to stick?
There is a massive reality distortion that comes from the reality home shows. Put aside every preconceived notion you have about home buying from them.
Know What You Don’t Know?
Many first time buyers blissfully go along thinking they can do it on their own. Not knowing what you don’t know makes it easy. But what are you missing. Sometimes your buying mistake is apparent right away but often a homeowner doesn’t realize they made a costly mistake until it comes time to sell.
So what can go wrong? Buy a five bedroom home on a 3 bedroom septic…. whoops now when you sell you’ve lost value from losing bedrooms. Or purchase a 3 family that is legally just a two family. Or not realizing the condo you bought has a huge special assessment coming for roof repairs.
These are just 3 very real, examples of things that can go wrong. If you are going it alone, and you didn’t do your do diligence or ask the right questions, its now your problem and now you own it.
Buying a home is complex on many levels. Financing, finding the right home, home inspections, closing…. every step of the way can cause you at the very least stress but also money!
Like I said earlier, anyone can find a home online, but there is so much more to the home buying process.
Not only hire a good agent to represent you, get a good home inspector, mortgage lender and real estate attorney to round out your home buying team.
Summary Of What First Time Home Buyers Should Know?
As you can see understanding the process and how they fit together during your purchase is critical to your success. Educating yourself about the various pieces and working with the right real estate professional will certainly go a long way.
Take the time and find an agent to work with that you are comfortable with. From there they will generally have recommendations of other real estate professionals that work in a similar fashion. And guess what, they do this everyday day in and day out…. they know what they are doing.
Finally realize you are in a process. Doing things out of turn or skipping steps will only lead to a disaster.
Happy house hunting!!
Other First Time Home Buying Resources:
- Bill Gassett Extra Home Buying Expenses First Time Home Buyers Need To Know
- Luke Skar First Time Home Buyer Mistakes To Avoid
- Maria Mastrolonardo Don’t Be Left In The Dark When Buying Your First Home
- Paul Sian First Time Buyer Tips for the Millennial
- Kevin Vitali What Is Wrong With Dual Agency For A First Time Home Buyer?
What Should First Time Home Buyers Know? was provided by Kevin Vitali of EXIT Group One Real Estate. Kevin Vitali is a Tewksbury MA REALTOR® that services northern Middlesex county as well as Essex county in Massachusetts. Call for your Home Buying Consultation…completely free and no obligation.