8 Steps to Follow If You’re Ready to Buy Your First Home

One of the biggest purchases you will make in your lifetime will be your home. Unfortunately, buying a home can be a time-consuming, confusing process for first-time homebuyers.

However, with a little research, you can learn how to buy a house without the stress. Follow these eight steps and you will know exactly how to buy a house before making the big financial decision.

1. Check your credit score and finances regularly

Your credit score and history matter greatly when you’re buying your first home.

A low credit score or short credit history can significantly decrease your chances of getting a manageable interest rate for a mortgage loan. It can also prevent you from even getting the loan at all.

“The best rates go to borrowers with a 740 score or higher,” explains Mindy Jensen of BiggerPockets.com. “On-time payments and low credit utilization make up 65 percent of your credit score alone, so if you aren’t currently paying your bills on time every month, start now.”

Improving your credit score can take time. But, it’s an essential piece of what to know when buying a house. Luckily with a few lifestyle changes, you can improve your credit score fairly quickly.

2. Save, save, save

You may have been advised on how to buy a house by family and friends. And more than likely, they repeated the old-school rule that you need to have a downpayment of 20 percent saved up.

But the existing home average sales price hovers around $250,000 as of June 2016, according to the National Association of Realtors. Saving $50,000 or more can take an extremely long time.

However, there are many programs to help first-time buyers. There are statewide, county, or city incentives, as well as bank-specific resources.

There are also government-backed programs such as Federal Housing Association and Veteran Affairs loans. These can lower your down payment requirements to as little as three percent.

Yet, it’s important to remember that without 20 percent, you will have to pay private mortgage insurance. That can add up to hundreds of dollars a month.

Don’t forget, buying a home is not a one-time purchase. After your contract is signed, you’ll be responsible for a valuable piece of property.

In 2012, U.S. News and World Report estimated that homeowners spend one to four percent of their purchase price yearly on repairs alone. In other words, start building a sizable emergency fund now to deal with future home expenses down the road.

3. Ask yourself the big questions

Before you go house hunting, consider what your needs are. Buying your first home when money is tight means it may not be realistic to get everything on your “must-have” list.

“Don’t expect your dream home right out of the gate,” says Dan Macklin of Newbiehomeowner.com. “Most homeowners only stay in their first home for a couple years. Sometimes buying for your current situation may be the best choice.”

Instead, ask yourself these big questions:

  • Where do I see myself in five years?
  • How much could I afford if my income was cut significantly?
  • How much time will I spend in my house each week?
  • Am I willing to pay for repairs or learn how to repair things in the home?
  • What am I willing to sacrifice for a more expensive home?

Going through this list will help you see the value of owning a home. And, how much you can commit both emotionally and financially to it.

4. Start your search early

We’ve all seen those shows where a buyer goes from house-hunting to decorating their new place in what seems like a few days.

Unfortunately, a TV show is an unrealistic version of how to buy a house. The Home Buying Institute estimates it can take anywhere from six weeks to six months to find and buy a home.

Therefore, you should start your search early if you’re on a deadline. Especially because real estate deals can fall through at the last minute, leaving you at square one.

5. Trust your realtor

When it comes down to choosing a realtor, trust makes all the difference.

Without trust, the negotiating, inspection, and financing processes can become even more complicated. A great realtor should be there to walk through the each and every step of how to buy a house from search to sign.

Jensen suggests asking those within your circle for recommendations. But even then, don’t hesitate to make a change if the relationship isn’t working.

“If you feel pressured to buy a home, or feel the agent isn’t communicating with you, or you just don’t feel comfortable using them, find another agent,” Jensen says.

6. Shop around for mortgages

In 2013, the Consumer Financial Protection Bureau found that 77 percent of mortgage borrowers end up applying with a single lender or broker, rather than filling out applications with multiple ones.

This is risky because not all lenders are created equal. And the truth is that as little as a half-percent difference in interest can cost a buyer thousands of dollars on a typical 30-year mortgage loan.

Furthermore, as with a realtor, trust is a huge issue with a mortgage lender. It’s important to find someone who is knowledgeable about the home buying programs you could qualify for. They should also be a person you trust to get a clarification on more technical terminology.

The best place to start looking for a mortgage is with your bank or a local credit union. Particularly if you need a smaller loan.

7. Remember, list price isn’t purchasing price

Like buying a car, the list price isn’t often what you end up paying in the end. It’s important to educate yourself on how to buy a home without falling for that sticker price shock.

For instance, during a buyer’s market when home sales are down, you may be able to get as much as 10 percent off the list price when you make an offer.

Meanwhile, offering full price could help you negotiate on closing costs or closing dates, which could save you thousands.

However, you may also learn that you’ll need to pay more than that asking price. Especially in a hot real estate area. That’s why a higher offer may give you some leverage.

8. Owning a home isn’t your only option

Millennials are bucking the trend to own a home once they reach a certain age. Instead, they’re looking at alternatives to home buying.

In fact, earlier this year Trulia found that 43.3 percent of Americans are now renting. That’s an increase of almost five percent since 2006.

Renting has some major advantages to owning. In many cases, renting offers fewer utility expenses. That’s because landlords cover property taxes, maintenance, water, and sewage.

Additionally, not having to pay for routine home repairs can save you big bucks in the long run. And, your living situation may be a lot less stressful.

Finally, renting equates to more freedom for those who are not yet ready to be settled. Instead of signing a 15-year or 30-year mortgage, a typical one-year lease gives a renter options if they’re not happy with their location or home.

How to buy a house the smart way

Before you head off to an open house or tell a home seller that you’re ready to put the offer in, be sure you do your research on how to buy a house.

Think about the amount of money you will be investing into your property and take ownership of the entire process.

Pick the right real estate agent, shop around for mortgages, and stick within your budget. It can help you save and spend wisely on your new home for years to come.

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print, understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

Published in Buying a House,