8 Useful Steps Every First Time Home Buyer Should Take
/Hey guys! Today, I have an awesome guest post by The Money Minimalists! I’ve been thinking about entering the housing market recently, especially since I think the area I’m in will become depressed with everyone working remotely these days. My friend, Kseniya, is a licensed real estate agent in Florida and a personal finance blogger. She’s worked with numerous first time home buyers and is here to shed some light on how to begin your home buying journey!
“When do I start preparing to buy a home”? This is one of the most common questions I get from first time home buyers. The best time to start preparing to buy a home is today.
We waste years of rent payments under the impression that we cannot afford a home. You do not need to put 20% down to buy your first house. There are 3% down payment programs out there, and even zero down payment options. Buying a home can seem daunting but it’s one of the best decisions I’ve ever made and I’m here to show you how you can start planning for one today.
8 Steps Towards Homeownership
Last year, I was a first time home buyer myself. I bought my very first home at 25 and finally got to experience what my clients had been going through for the past few years. Between my personal experience and guiding numerous others, I have created an in-depth guide going over the 8 steps towards homeownership. Budgeting is all about planning and accounting for your expenses and homeownership becomes much more attainable the earlier you start planning for it.
Understand why you’re buying a home
Are you ready to settle down? Are you buying a home in the hopes of renting it out in the future? There are countless reasons people choose to buy a home. Understanding why is pivotal to making sure you approach homeownership the right way.
If you’re planning to transform the home into an investment property, the location and average rental prices should be a higher priority to you than if you were buying a personal home. Make sure you understand what this home means to you so you can approach the home search appropriately.
Determine your budget and timeline
You do not need 20% down! In fact, the average down payment for a first time home buyer is 6%. There are also programs for 3% down payment, and even zero down payment!
But, keep in mind that down payment is not your only cost as a buyer. You will also have to budget for closing costs (usually around 4% of the purchase price, these include taxes, insurance, and processing fees), and the actual process costs (around $1000-1500, these include the inspections, survey, and appraisals).
So, in total, the home buying process roughly costs: 3% down payment + 4% closing costs + $1,500. This will vary based on your down payment choice, property taxes, lender, and inspection costs.
Once you determine the amount you need to save for, you can add this into your budget and determine how long it will take you to be ready. Keep in mind that some sellers are able to contribute and cover part of your closing costs, if not all.
Tackle your credit score
You do not need impeccable credit to purchase a home. One of the most common loan programs (FHA) requires a credit score of 580. Keep in mind that different lenders might have “overlays” where they create more stringent guidelines for their loans. Be sure to speak to multiple lenders before committing.
Determine what you’re looking for
The perfect house does not exist. You will need to determine what your priorities are so you can simplify your home search. Some common ones are school district, location, and size.
Familiarize yourself with the tools
There is a wealth of information out there to help make the most informed decision on your home! You can look up whether the home is in a flood zone, crime reports, and much more!
Interview and pick a Realtor
This is one of the most important steps. Your Realtor can either make or break your home buying experience. Make sure you pick one who you can trust and who will make it a stress free and enjoyable experience.
How do you find a Realtor? You can find them at open houses, Zillow, Yelp, Realtor.com and even social media! Search popular hashtags like “#[your city]Realtor”. Make sure to read their reviews before committing to one!
Interview and pick a lender
Talk to at least 3 lenders before picking one! Your Realtor should be able to provide names of the ones they trust, and you can do your own research as well. The guidelines, fees, and interest rates all vary based on your lender. You can also search for them on Zillow, Yelp, Realtor.com and social media!
Get pre-approved by a lender
Once you’re ready to get the process rolling, you can get pre-approved by a lender! This is the process for you to become eligible for a mortgage. They will pull your credit, look at your last two years tax statements, last two months bank statements, and your pay stubs. Make sure to do this step at least two months before you’re ready to buy!
Even if you’re a year or two away from buying a home, I recommend running through the down payment calculation and evaluating your credit score so that you can be productively working towards your goal. For a more in-depth run down of these steps, check out my 21 page guide here.
Please share these first time home buyer tips with your friends and family so they can be informed before buying a house!
