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Tips for First-time Home Buyers

Buying a home for the first time? Read our 10 tips for first-time home buyers on how to avoid stress and streamline the process.

Buying a home can be a time full of anticipation, excitement and stress. For those not familiar with the home buying process, it can be a bit overwhelming. That’s where our tips on first-time home buying can really help you to focus on key details and land the home of your dreams — on time and on budget.

We’ll walk you through everything you need to know about each aspect of the home buying process. Take a look at these expert insights and tips for purchasing a home.


Assess Your Financial Health

Before you even start looking online for homes, it’s key to know where your finances stand. You’ll need to have a fair amount of cash on hand to offer for earnest money and a down payment. It’s also smart to have savings in the form of an emergency fund. You may need to do some repairing or replacing in the months after you’ve moved in.

You’ll also want to have intimate knowledge of your credit rating and the amount of debt you’re carrying. Mortgage brokers and direct lenders will review your financial profile in great detail. Without a fair amount of money saved up, it can be difficult to secure a loan. 

Figure Out Your Budget

Review your monthly expenses as they exist now. You can use today’s budget to build a pretty accurate perspective on how much you can afford to pay in the form of a mortgage payment. Keep in mind that property taxes, private mortgage insurance and homeowners insurance will be paid in monthly increments as well. That’s in addition to expenses for utilities, payments to credit cards — remember to include your auto and student loans too.

Many first-time home buyers make the mistake of shopping out of their price range. After running the numbers, you may be surprised to find that your monthly budget won’t get you into the type of home you’ve been targeting. By working carefully to understand your finances before you shop for homes, you can stay within the constraints of your monthly income. 

Create a List of Home Needs

Now it’s time to put pen to paper and make a few lists. Prioritize what you need in a home vs. what you want in a home. Amenities like a newly renovated kitchen may be nice, but if you find a home with a new HVAC system and an older kitchen, that may be a better option. Put together a list of features you’re looking for. Are you anticipating adding to the family? Perhaps you’re hoping to have children in the future? Or will you need an in-law suite for visitors or aging parents? Select homes that can accommodate your future needs, too. 

Find a Trustworthy Agent

Now that you’ve narrowed down your options to homes that meet your needs — both financially and materially — it’s time to seek representation. First-time home buyers may not be aware of all the options available to them when it comes to negotiating a deal. A seasoned agent can help you navigate any pitfalls and alert you to issues or opportunities that may not be apparent to the untrained eye.

Ask for realtor recommendations from friends, and remember to inquire about agent response time. Because so much of a real estate deal requires quick turn-around and attention to detail, you want to know that the realtor you choose will be available when you need them. Interview realtors carefully and be sure they’ve worked proactively in the past to the benefit of their clients. 

Research Mortgage Options and Rates

Now it’s time to seek financing for your home purchase. One of your biggest jobs is to shop around for a good mortgage. Look online for mortgage groups that offer discounts, incentives and even pay some of your closing costs.

Because mortgage rates rise and fall across the year, it’s key to lock in the best rate possible. Even a quarter of a percentage point can make a huge difference in the total cost of the loan.

If possible, consider putting down at least 20 percent — you’ll potentially save yourself thousands in private mortgage insurance (PMI) over the life of the loan. If that’s not possible, you still have plenty of options.

There are various types of loans to choose from:

FHA loans. Federal housing administration loans are designed for borrowers with low-to-moderate incomes. Most FHA loans only require 3.5 percent of the purchase price as a down payment. They’re also key for borrowers that have lower FICO credit scores.

VA loans. These are loans guaranteed by the US Department of Veterans Affairs. They’re intended to provide affordable financing for eligible veterans — often without any down payment. Usually, these loans don’t require a PMI and have more lenient credit and income requirements.

Conventional loans. These are loans that don’t have a guarantee or insurance provided by a governmental agency. They typically requiring at least 3 percent down, and they won’t require PMI when at least 20 percent is delivered as a down payment.

Adjustable rate mortgages may be worth considering when you’re planning paying off the home for just a few years. An adjustable rate mortgage is a loan where the interest rate varies across the life of the loan. You’ll get a fixed rate for a period of months, then it converts to an interest rate based on a benchmark — or index — plus an additional spread, sometimes called an ARM margin. 

Get a Mortgage Pre-approval

Now you’ll need to get financing for your loan and request a pre-approval letter from your top three lenders. You’ll lock in the financial commitment from the lender and get a feel for what the interest rate will be.

The pre-approval document is very important in competitive markets. When sellers are considering multiple offers, they’re usually going to go with one where the buyer has proven that the money to close the deal is within reach.

Your pre-approval letter will likely contain a financial limit. With it you’ll get a loan estimate and be better able to determine which type of loan suits your finances best. 

View Houses in Your Budget

Finally, it’s time to shop for homes! Use the filtering options on real estate websites to view homes within your budget. Find that list of wants and needs and use it to help narrow down your results.

Remember to work with your real estate agent. They may point you to qualifying homes that aren’t yet for sale. In areas where homes are selling very quickly, you’ll need to put a bid in on a home very soon after the home hits the market in order to be considered by the seller. 

Make a Competitive Offer

Now you need to put together a competitive offer with the help of your realtor. By referencing comparable homes that have recently sold in the neighborhood, you’ll be able to get a real-world feel for pricing.

In active markets, it may be wise to propose a financial incentive to the seller — like offering to pay their realtor fees — if they select your bid. On the other hand, when the real estate market’s slow and homes are not selling quickly, you may be able to draw up terms that benefit yourself. Your agent can help you get a feel for what works best.

Remember to get flood plain details — you may need to budget for flood insurance, and you may want to adjust your offer to reflect that. Also, it’s here where your earnest money comes into play. Most buyers put 1-2 percent of the purchase price into earnest money. 

Get a Home Inspection

Your agent will probably draft a clause into the agreement requiring that you get the home inspected. The results of the inspection will give you the option to decide whether to continue forward or exit the deal. If you do decide to exit, you’ll usually get your earnest money back. Typically, you have to pay out of pocket for most home inspections, around $500.

It’s after you receive the condition report from you inspector that you’re able to make a counter-offer, based on the results. If your homeowners insurance company requires the electrical system to be upgraded, that could be money out of your pocket.

But it could also be a concession the seller’s willing to make. Other findings in that report need to be completely understood before you agree to move forward. It’s not unreasonable to ask the seller to pay for fixes or upgrades to bring the house up to the standards you require. And if they won’t pay, you don’t have to buy. 

Prepare for Closing Costs

Next up, your lending bank will likely call for an appraisal of the home. Typically another pre-closing out-of-pocket expense, the appraisal will determine a fair market value of the home.

It’s those hidden costs of closing on a home that can sometimes surprise you. And it’s why we built this closing costs calculator for you. Between title insurance, home insurance coverage, taxes and everything else, closing costs can escalate quickly. With a budget calculator like this, you’ll have a better idea of how much you’ll need to bring on closing day. 

Get the Homeowners Insurance Coverage Your Home Deserves

Buying a home is a lot to take on. With the right realtor at your side and careful planning, you just might find yourself with the keys to the home you’ve always wanted. While you’re making plans to purchase a home, remember to get in touch with your American Family Insurance agent (Opens in a new tab) and have them build you a homeowners quote. You’ll find they’re experts at fine-tuning your policy with coverage limits that meets your new home’s exact needs.

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