Many people still consider buying a home to be a major step in obtaining the American Dream. But doing so is a daunting undertaking, and can seem even more of a challenge if you are doing so for the first time. Here are a few highlights to help demystify the process so that you might feel a bit more comfortable buying your first home.
1. Advantages to Being a First-Time Homebuyer
In order to encourage new buyers to enter the real estate market, there are some special benefits afforded to first-time homebuyers. As defined by the U.S. Department of Housing and Urban Development (HUD), aid is available to first-time homebuyers in the way of state programs, tax breaks, and federally backed loans. The programs offered by national and state agencies could prove useful if you are concerned about being able to afford a high down payment.
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According to the HUD, what qualifies you as a first-time homebuyer?
- If you are a displaced homemaker who has only ever owned a home with a spouse.
- If you have only ever owned a property that was not in compliance with state, local, or model building codes – and that cannot be brought into compliance for less than the cost of constructing a permanent structure.
- If you have not owned a principal residence for three years. If you’ve owned a home but your spouse has not, then you can purchase a place together as first-time homebuyers.
- If you are a single parent who has only owned a home with a former spouse while married.
- If you have only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations.
2. Protect Your Financial Future
Buying a home involves a lot of steps, some of them larger and more complex than others. This is especially true about the financial responsibility and commitment that must be undertaken when becoming a homeowner. Consider these steps to ease the burden of this crucial stage:
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- Fix and Monitor Your Credit Carefully: Pay down debts and keep credit card balances low. Make certain to pay your bills on time.
- Secure Your Budget: The money you will need goes far beyond the purchase of the home. Be sure to factor in the mortgage, insurance, property taxes, utilities, possible HOA fees, maintenance, and unexpected repairs. You may also need to put aside even more if you end up buying an older or bigger home. Shopping for a house below your budget could actually give you the option to go over the asking price, should you end up in a bidding war.
- Nail Down Your Assets: You need to be able to show potential lenders that your sources of income are stable, regardless of the amount of those earnings. If you have any deposits, such as down payment gifts, deposit those at least two months before you approach a mortgage lender. Avoid opening new lines of credit or taking on additional loans at this stage.
- Shop Around: When you are finally ready, you should compare different types of lenders and the various types of mortgages they might offer. Compare the rates and the terms of the mortgage as well – such as late fees, estimated closing costs, whether there is a prepayment penalty, etc.
- Get Preapproved: Though they usually only last 90 days, a pre-approval for a mortgage is an official letter from a lender stating exactly how much they are willing to loan you. Having one will strengthen your position when making an offer on a property and will ease the process tremendously. Even with a preapproval, however, lenders will recheck your credit and finances before closing. Make sure to maintain the discipline that you established early on in this process.
- Have the Home Inspected: Beauty is only skin deep. Even if a home doesn’t appear to have any issues, you need to have a professional perform a home inspection of the property before buying. Unexpected and costly repairs could be hiding just out of sight. If the inspection turns up undisclosed defects that are of a serious nature, you may be able to withdraw your offer and get your deposit back.
3. Location, Location, Location
One of the most important considerations when choosing a new home is location. When you look at a property, there are a lot of things to look at beyond just the house itself. You should drive and walk around the areas that surround the property at different times of day and night, and during different types of weather even.
Some things to consider when scouting out a prospective home:
- Closeness to your place of employment.
- Noise levels from neighbors and surrounding areas.
- Traffic and proximity to main roadways.
- Ease of access to parks, public transportation, schools, and shopping locations.
- The site of the home, including neighbor sightlines and your views.
- Neighborhood tidiness and safety.
- Curb appeal, including landscaping, decks, patios, and the roof.
- The floor plan and practicality of the home’s space.
- Bedrooms and bathrooms, both for now and any future additional tenants you may have.
- The appeal of the kitchen (remodels are very expensive and time-consuming).
- Ample closet and storage.
- Lighting – both natural light through windows and the current fixtures.
- Finishing Touches, such as trim, hardware, fireplaces, thermostats, or security systems.
Buying your first home can be an overwhelming process. It is an enormous financial investment and can be frightening at times. Just know that many others have gone before you. With these three things that we have touched on in this article, you will have a much better understanding that you too can make this fundamental step in your future.