Buying your first home can seem like a daunting task. Between determining your budget, considering various neighborhoods, and having to go through multiple homes to find the perfect one can be time consuming and exhausting. But the truth is, if you know what to expect from the first-time home-buying process you’ll have a much easier time!

Since buying your first home is one of the most important decisions of your life, we’ve decided to help you by putting together a handy guide. In this guide, we’ll help you better understand what to expect, what costs are involved, and some tips for first-time homebuyers. Here’s everything you need to know about buying your first home:

 

Who is Considered a First-Time Homebuyer?

First-time homebuyers usually fall under one of the following criteria:

1. Individuals or couples who have never owned a home before.
2. Individuals who owned a home with their former spouse and are now divorced and looking to purchase their own home.

 

What to Consider Before You Buy a Home

One of the first things to consider is what your long-term goals are and how owning a home will fit into those plans. Some first-time homebuyers are simply looking to stop “wasting” money every month renting and replace that expense with a monthly mortgage payment instead, which gives them something tangible.

Others may see homeownership as a more independent way of living since there is no landlord or lease hanging over their heads. In addition, there are individuals looking to purchase their first home to repair, upgrade, and sell it. Regardless of your main reason for wanting to buy a home, here are some questions you should ask yourself:

1. What type of home will best suit your needs and lifestyle?

You have several options when buying a home, including traditional single-family homes, townhouses, condos, co-ops, duplexes, or multi-family buildings (with 2 to 4 units). Each option has its benefits and downfalls, depending on what is important to you. You’ll need to evaluate these options and find which works best for you. If you are ‘handy’, you may even want to search for a fixer-upper to save money then invest time and money to turn it into your dream home.

2. What features and details are you not willing to negotiate on? (What must you have?)

It’s important that you remain flexible while shopping for your first home. However, you also need to determine what your needs and wants are, and which of those needs and wants are absolutely non-negotiable.  For example, if you have children or plan on having children, you may want to ensure your home is within a good school district. Or maybe you want an open layout and are not willing to invest the time and money to remodel a home that doesn’t have an open layout. Find what is most important to you and keep that in mind when shopping around.  

3. How much mortgage do you actually qualify for?

Before you begin the home-shopping process, it’s important to get an idea of how much mortgage you qualify for. There are a few things lenders take into consideration when determining how big your loan will be, such as how much other debt you have, your credit score, how long you’ve been at your current job, and your monthly income. Having a 20% down payment ready in hand will also help get you approved for an acceptable home loan.

Make sure you’re pre-approved for a loan before placing an offer on a home. Some sellers won’t even consider offers sent without a pre-approval. Be sure you have a “Pre-Approval” vs. being “Pre-Qualified.” Pre-Qualified simply means a lender gave you an idea of what you can afford based on the basic information you provided them. A Pre-Approval is when you provide all your financial information to a lender, and they actually approve you for the mortgage and provide a set dollar amount to spend.

4. How much home can you afford?

First off, just because you’re pre-approved for a $350,000 loan doesn’t mean you should borrow that much. Do the math! How much of your income will go into your monthly mortgage payment? Do you have enough left to live comfortably? Do you have enough saved up for emergencies? You never know when unexpected things will happen (for example, natural disasters, leaks, etc.). Many first-time homebuyers make the mistake of over-borrowing and end up “house-poor,” barely scraping by and left unprepared for unexpected expenses.

Secondly, you’ll need to have about 20% of your total home loan ready as a down payment. This will help you avoid PMI (private mortgage insurance) and will also help you lower the total interest you’ll have to pay overtime on your home. You’ll also need to take into consideration how high your property taxes are based on the home’s neighborhood, how much insurance you’ll be paying, how much your closing costs will be, and how much you expect to pay to maintain or improve your home. If you plan on purchasing a condo or a townhome, you will be a part of a homeowner’s association, which means you’ll have to pay monthly maintenance costs.

5. Who is going to help you find a home and guide you through the purchase process?

Some individuals may choose to do all of this on their own, although when it comes to buying your first home, you may want to go with a real estate agent. They will be able to locate homes that are within your price range and meet your needs. Realtors will guide you through the entire process, from finding the right home to closing. They will also prove invaluable when it comes to answering your questions, pointing things out about the home you may miss, and will be knowledgeable about the local schools and community.

 

The Home-Buying Process

Now that you’ve decided to move forward and purchase a home, let’s discuss what you can expect from the home-buying process. Here’s how most home-buying processes work:

1. Secure financing – Before finding your dream home, make sure you’ve been pre-approved for a mortgage and have the necessary funds for the down payment and other expenses (such as property tax, closing costs, etc.).

 

2. Find a home – You’ll likely visit a few different homes, check out the neighborhoods, and ask your friends and family if they know of any good available homes. If you’re working with a real estate agent, make sure that he/she has a list of your requirements along with your budget.

 

3. Make an offer- Once you have been pre-approved for a mortgage and have found your dream home, you will need to put in an official offer on the home. If you are working with a real estate agent, he/she will handle the negotiations. The seller will either accept your offer, turn down your offer (because a competing offer closed the deal), or will respond with a counter-offer, which you can accept or keep going back and forth until a deal is reached.

 

4. Obtain a home inspection – Even if the home seems perfect, it’s important to have a trained professional inspect the property. They will be able to verify that the home is in good condition and has no safety issues. This will allow you to ensure you don’t get stuck with any issues your seller did not disclose (oftentimes because they don’t even know about the issues). If there is an issue, you can get an estimate and either get a discount on the price of the home or revoke your offer on the home.

 

5. Close – If everything goes well with the inspection and the seller accepts your offer, you will be ready to close. This involves signing a lot of paperwork, committing to the mortgage, and hope that no issues will occur before the closing is completed.

Once you’ve purchased a home, you’ll need to make sure that you pay your mortgage on time and enjoy personalizing your new home!

 

We’re Here to Help!

Buying a home is a big financial decision. We’re ready to walk you through the entire process, get you pre-approved and answer any questions you have. To get started, give us a call at 202-479-2270 or email us at members@agfed.org.