Buying your first home is an exciting process but it can also be pretty daunting one, especially if you don't know where to start. There is a ton of information and paperwork involved in the process.
Since buying a home is one of the most important financial decisions you will ever make, seeking out proper guidance from a knowledgeable real estate professional will save you plenty of time and confusion in the long run.
As real estate agent in North Carolina, I love helping first-time home buyers because I have the opportunity to educate and guide them through this new journey in their lives. The question I am most often asked by first-time home buyers is, "What should I know?" or "What should I prepare for?" I've compiled a list of five things all first-time home buyers should know before they get started with their home search.
1. Know how much you can afford.
Before you even start searching for your dream home, make sure you are prequalified first. Prequalification gives you an idea of the maximum loan amount you can afford. It is based on consumer data you submit to a lender which will provide an accurate estimate of how much you can borrow. You don't want to start looking at houses, fall in love with one, and realize it's completely out of your price range! Ouch!
The next step is the preapproval process which is slightly more involved. This is where the paperwork comes in! In order to be preapproved, you must complete a mortgage application and supply the lender with all the required documentation to perform a proper background check on your financial and credit history.
2. Make sure your credit score is good.
Your credit score will be one of the key factors considered when applying for a mortgage loan therefore you should know where your score stands. It can have a huge impact on the interest rate you pay.
Make sure you are keeping tabs on any changes regarding your credit score so nothing takes you by surprise when you are ready to get preapproved for a mortgage loan. Typically, the average acceptable score is between 620-700. It is a good idea to check all three of your credit scores before applying for a mortgage. Additionally, consider paying off as much debt as you can before applying.
3. Yes, you can own a home without 20% down.
While 20% down is usually the standard and is recommended, you do not need to have 20% of the purchase price to become a homeowner.
Keep in mind if you put down less than 20% you will have to pay PMI (private mortgage insurance), which is $50 to $200 a month. Once you reach a certain threshold on your loan to value ratio, you can cancel the private mortgage insurance. With that being said, I usually recommend to my clients to save up as much as they can for a down payment because the more you can put down, the better. This allows for a lower monthly payment.
4. Have everything inspected.
Having a home inspection done once you are under contract is one of the most important steps of the process. Why? Because it places more negotiating power in the buyer's hands.
As a first-time home buyer, you want to know what it is you are buying. There can be underlying problems with the home not readily visible, and having an inspection done can save you a lot of time and money in the long run. If the home you really want is in the higher end of your price range, certain information provided by the inspection may even give you more negotiating power to talk down the price.
5. Homeownership is a great opportunity and responsibility.
Owning a home is considered the ultimate American Dream. Buying your first home can set you on the path to financial freedom and personal wealth, and let's be honest—it feels amazing to have your own place! Keep in mind that with this great opportunity also comes great responsibility since your home is also your investment.
If you are a first-time home buyer, you may be used to the landlord sending someone out to fix your broken AC system or replace your refrigerator. As a homeowner, this is now your responsibility. Anything that goes wrong in the house is up to you to fix, so it is important you financially prepare for this.
A well-known tip is to save 1% of the home's value every year. Many financial advisors have also recommended setting aside three months' worth of mortgage payments for emergency repairs. Whichever option works best for you it is important to be prepared to take care of your investment.
In conclusion, homeownership is an exciting opportunity and can help you create a great life for you and your family.