Buying a first home is an exciting life moment, but it can go terribly wrong if you don’t know what you’re doing. This is one of the biggest financial decisions you’re going to make in life, and there may be hundreds of thousands of dollars at stake. Additionally, this is the home you’ll be living in for the foreseeable future—you want to make sure it’s everything you need it to be.
If you’re inexperienced, it’s hard to figure out your own points of ignorance; in other words, you don’t know what you don’t know. That’s why you have to lean on the experiences and insights of others to make the best possible decision for you and your family.
The Best Tips for New Homebuyers
This list of tips is far from comprehensive, but it should help you make a more informed decision, and avoid some of the common mistakes that plague inexperienced homebuyers.
1. Know what you want going in. Before you start looking for homes, you should have a clear idea of what your priorities are. What kind of home are you looking for? How big should it be? How many bedrooms and bathrooms should it have? What are some “must have” features that are indispensable in your search, and what are some wants that you’d be willing to compromise on? Set these priorities in advance.
2. Improve your credit score. Ideally months before you shop for a home, you should work on improving your credit score. A better credit score is going to help you score better terms on your home loan. You can do this by paying down your debts, paying all your bills on time, and avoiding opening new loans or lines of credit.
3. Shop around for a home loan. Many new homebuyers aren’t aware that you can shop around for a home loan. Instead of going with the most convenient or the most obvious option, look at different loan providers and try to get the best interest rate with the most favorable terms. You could save upwards of thousands of dollars a year this way.
4. Work with a buying agent. When it’s time to start looking for homes, make sure you work with a buyer’s real estate agent. This agent is responsible for helping you find the best possible deal—and you generally don’t pay them a commission (instead, this comes from the seller). It’s a valuable resource that won’t cost you anything.
5. Save up a down payment. Spend time saving up a down payment. You’ll usually need at least 5 percent of the purchase price of the home, but you may be better off saving 20 percent or more; otherwise, you could end up paying private mortgage insurance (PMI), which could significantly increase your monthly costs.
6. Prepare for closing costs. Many inexperienced homeowners are unprepared for closing costs, which could range in the hundreds to thousands of dollars. Set some cash aside for closing costs and unexpected costs you encounter during the homebuying experience.
7. Get preapproval. If you can, get preapproval for a loan before you shop for homes. Preapproval isn’t a guarantee that you’ll be provided a loan, but it’s a good indication of your creditworthiness. It will help you feel confident about your home buying budget, and make sellers take your offers more seriously.
8. Don’t overbuy. When you see a gigantic, beautiful home that offers everything you’ve ever wanted, it’s tempting to try and buy it—even if it’s outside your budget. However, it’s imperative that you avoid exceeding your budget. If you buy more house than you can truly afford, it could end up haunting you and wrecking your finances for years to come.
9. Remain open to new ideas. You might have a solid idea of what kind of home you want to buy, including the style, the size, and the neighborhood. However, it’s wise to remain open to other ideas. You never know where you might find an ideal home.
10. Be patient, but ready to pounce. It takes a long time to find a perfect house, so remain patient. Just be ready to jump on a good deal when you find one.
Learning From Others
One of the best takeaways you could take from this article is the importance of learning from people more experienced and/or knowledgeable than you. Consider talking to friends and family members who have bought homes in the past. Talk to mentors and financial experts to learn more about the nuances of the homebuying decision. And of course, make sure to talk with your loan originators and real estate agents to get more information about your decision. The more you learn, the more confident you’re going to be.