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What Should You Know Before You Buy Your First Home?

Buying a home can be stressful, especially if you’re a first-time home buyer. Not only is it probably the biggest purchase of your life, but the process is complicated and filled with unfamiliar lingo and unexpected expenses.

Team Vivi wants to make the first-time home buying experience enjoyable! Here are several tips to help you navigate the process and save money:

Start saving for a down payment

It’s common to put 20% down, but many lenders now permit much less, and first-time home buyer programs allow as little as 3% down. First-time home buyer programs are plentiful, including federal mortgage programs with Fannie Mae and Freddie Mac that allow loans with very little down, plus Federal Housing Administration loans and Veterans Affairs loans.

In addition to federal programs, many states offer assistance programs for first-time home buyers with perks such as tax credits, low down payment loans and interest free loans up to a certain amount. Your county or municipality may also have first-time home buyer programs.

But putting down less than 20% may mean higher costs and paying for private mortgage insurance, and even a small down payment can still be hefty. For example, a 5% down payment on a $200,000 home is $10,000. Work with the Team Vivi mortgage calculator to help you land on a goal amount.

Get your credit in shape

When applying for a mortgage, your credit will be one of the key factors in whether you’re approved, and it will help determine your interest rate and possibly the loan terms.

Check your credit before you begin the home buying process. Investigate and challenge any errors that could be dragging down your credit score and look for opportunities to improve your credit, such as making a dent in any outstanding debts. Be careful about credit inquiries during this process.

Any time you open a new credit account, whether to take out an auto loan or get a new credit card, the lender runs a hard inquiry, which can temporarily ding your credit score.

Determine how much home you can afford

Before you start looking for your dream home, you need to know what’s actually within your price range. Use a home affordability calculator to determine how much you can safely afford to spend. This one at realtor.com is easy and gets you your price range quickly.

Budget for closing costs and move-in

In addition to saving for a down payment, you’ll need to budget for the money required to close your mortgage, which can be significant. Closing costs generally run between 2% and 5% of your loan amount.

You can shop around and compare prices for certain closing expenses, such as homeowner’s insurance, home inspections and title searches. You can also defray costs by asking the seller to pay for a portion of your closing costs. And once you’ve saved for your down payment and budgeted for closing costs, you should also set aside a buffer to pay for what will go inside the house. This includes furnishings, appliances, rugs, updated fixtures, new paint and any other touches you’ll want to have when you move in.

Compare mortgage rates and mortgage options

Comparing mortgage rates from at least three lenders can save you more than $3,500 over the first five years of your loan, according to the Consumer Financial Protection Bureau. Get at least three quotes and compare both rates and fees. Is a 30-year, fixed rate mortgage a given, or is another loan type right for you? If you can afford larger monthly payments, you can get a lower interest rate with a 20-year or 15-year fixed loan.

Get a preapproval letter

You can get prequalified, which simply gives you an estimate of how much a lender may be willing to lend based on your income and debts. But as you get closer to buying a home, it’s smart to get a pre-approval, where the lender thoroughly examines your finances and confirms in writing how much it’s willing to lend you and at what terms.

Having a pre-approval letter in hand makes you look much more serious to a seller and can give you an upper hand over buyers who haven’t taken this step.

Stay under your preapproval limit

As you’re looking at homes, look for properties that cost a little less than the amount you were approved for. While you can technically afford that amount, it’s the ceiling — and it doesn’t account for a broken washer or dryer or any other expenses that arise during homeownership, especially right after you buy. Rather than maxing out that amount, set a lower purchase budget to leave yourself wiggle room for unexpected costs.

Pick the right neighborhood

Finding the right neighborhood is just as important as locating the right house. Research the schools, even if you don’t have kids, since that affects a home’s value. Look at local safety and crime statistics. How close are the nearest hospital, pharmacy, grocery store and other amenities you’ll use? Also, drive through the neighborhood on various days and at different times to check out traffic, noise and activity levels. Team Vivi has data incorporated into easy to read maps that can help with this.

Make the most of an open house

Use this as another opportunity to scope out the neighborhood and your potential neighbors. Ask a lot of questions about the home, such as when it was built, when items were last replaced and how old key systems like the air conditioning and the heating are. If several other potential buyers are viewing the home at the same time as you, Team Vivi can schedule a second or third visit to get a closer look and ask more questions.

Buy a home for tomorrow

It’s easy to look at properties that meet your current needs. But if you plan to start or expand your family, it may be preferable to buy a larger home you can grow into. Consider your future needs and wants and whether this home will suit them.

Think beyond the paint

When you’re looking at a home, it’s easy to get caught up on superficial details like paint color, fixtures and carpets. These features are easy to change once the home is yours, so don’t let those little details get in the way.

Be prepared to compromise

It’s rare to find a house that’s perfect in every way, so think carefully about what you’re willing to compromise on and what you’re not. Perhaps no walk-in closet in the master bedroom is a deal breaker, but an outdated guest bathroom will be tolerable until you can renovate it.

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