First Time Home Buyer Tips
This is a guest post written by Sheldon Brown.
Feeling overwhelmed with the thought of buying your first home? You’re not alone! Purchasing your first house can be exciting and confusing, and in my seventeen years of working as a mortgage broker, I’ve noticed that first-time homebuyers never know where to begin. To help simplify the process, I’ve combined my top tips into a five-step plan.
Step 1 – Understand Your Personal Financial Situation
When a bank or mortgage broker presents you with financing options, these figures are based on three main factors:
1) Your credit rating
2) Your income
3) Your income-to-debt ratio
Before you even start talking to a bank or mortgage broker, I highly recommend that review all of your personal finances so that you know where you stand. At a bare minimum, make sure you know the following:
• The amount of money you have saved as a down payment
• The amount of any outstanding credit card or loan debt
• How much income you bring in each month
• How much you spend, on average, each month
• How much you can comfortably spend on a mortgage payment each month
Step 2 – Get Pre-Approved For A Mortgage
There are many reasons why I recommend getting pre-approved for a mortgage, but the first reason is so that you are very clear on the amount of money the bank or lender is willing to lend you. This should not be confused with “how much money you can spend,” because I never recommend that homebuyers spend their entire pre-approved amount. However, knowing what you qualify for is an important factor in deciding what price range to house hunt in.
The second reason why I recommend getting pre-approved before you start looking at homes is that it shows sellers that you are a serious buyer. This is especially helpful in a competitive market where multiple offers are being presented to a seller.
Step 3 – Research Home Ownership Fees
Purchasing a home costs you a lot more than just the down payment and monthly mortgage payments. You also need to budget for other costs associated with the buying process, moving and home ownership. Without considering these costs, you could be left in a bad situation when it comes time to close on your house, and you can’t afford things like house insurance or property taxes. The thought of all of these extra costs can be very overwhelming, but it’s best to know about them before it’s too late. If you’re unsure what any of these costs will actually cost you, then I recommend that you talk to friends and family to find out what they pay. You can also call around to ask for quotes. Here’s a list of costs you should consider:
• Closing costs
• Home inspection fees
• Land transfer tax
• Legal fees
• Property taxes
• Home insurance
• Moving costs (such as renting a truck)
• Home repairs
• Furnishing your home
Step 4 – Research Mortgage Options
Some mortgages are locked in at lower prices for along period of time – which gives you very little flexibility down the road. Other mortgages may be a bit more expensive right now, but they allow you to pay off your mortgage faster. You need to consider what your future needs may be, not just what you can afford right now. This may sound confusing, but there are plenty of online resources to help you make this decision. I recommend using an online mortgage calculate to compare your options. Once you have an idea of what each option offers you, you can discuss it further with your mortgage broker to make a final decision.
Step 5 – Establish Your “Wish vs. Need” List, And Start Looking
I always tell my clients to think of their first home as their “starter home,” not their “forever home.” To get started in the real estate market, you need to understand that the first home you purchase won’t have absolutely everything on your wish list. As much as we would all love to have a walk-in closet and ensuite bathroom, the budget of a first-time homebuyer rarely allows for luxury items. Before you start looking at houses, make a list of what you NEED to have and what you WISH to have. Try to be realistic with yourself about what you need to have, then let the house hunting begin!
Still have questions? Leave them in the comments below.
This article was written by Sheldon Brown. Sheldon has worked as a mortgage broker for the last seventeen years, and he’s assisted plenty of first-time homebuyers on their journey to purchasing a home. You can find out more about Sheldon on his website or you can follow him on Facebook.This post may contain affiliate links. Read my disclosure policy here