Buying a home for the first time might be difficult, especially right now with the median U.S.  home price above $400,000.  Understandably, you’d be concerned about making an error that could have serious financial ramifications.  On the other hand, first-time homeowners benefit from several incentives designed to encourage them to get into the market including USDA loans, VA loans, and FHA loans.  Buying your first home can be intimidating, so we’ve put together this home buying guide to help you understand what to expect and make the most of the experience once you’ve closed on a property.

Considerations Before You Buy

First and foremost, you must decide on your long-term objectives. Think about how homeownership fits into those plans, then. “Wasted” rent payments can be converted into mortgage payments that lead to the ownership of something tangible-equity, baby! Others relish being their own landlord and regard property ownership as a symbol of their freedom.  Finally, the idea of purchasing a property as an investment should be considered.  Defining your big-picture goals for homeownership will help you get there.  What are the six questions you should ask yourself before you begin? 

1: What Kind of House Is Right for You? 

Residential property can be purchased as a standard single-family home, townhouse, condominium, co-op, or two to four-family structure.  There are advantages and disadvantages to each option. Decide for yourself which form of the property will assist you in achieving those objectives.  Buying a fixer-upper can save you money on just about any purchase (although the amount of sweat equity, money, and time, involved to turn a fixer-upper into your dream home might be much more than you bargained for). 

2: In What Ways Do You Envision Your Ideal Home?

While keeping some wiggle room in your list is a good idea, you’re about to make one of the greatest purchases, and you deserve to have it meet your needs and wants as precisely as you can. Your wish list should cover the basics like size and location, all the way down to the finer points like the arrangement of the bathroom and the presence of reliable appliances in the kitchen. Websites devoted to real estate can be a useful source of information.

3: Are You Eligible for a Large or a Small Mortgage?

It’s critical to know how much a lender is willing to lend you before you begin house hunting. Depending on your other debt, credit scores, monthly salary, and how long you’ve been at your current employment, lenders may only think you’re good for a $200,000 apartment.  You should obtain preapproved for a loan before making an offer on the house. In many cases, sellers will not accept an offer without a pre-approval from a lender.  Some real estate agents refuse to spend time with clients who haven’t figured out how much money they have to work with first.  To get started, do some research on lenders and compare their interest rates and costs.  Finally, submit your mortgage application and all supporting papers your lender requires to verify your income and debt.

You can apply for a conventional loan or a government-backed loan such as the FHA, USDA, VA, or other targeted low-to-moderate income homebuyers.

4: What Can You Afford in a House? 

It’s possible to get a loan for an expensive house that you don’t want to spend the money on.  No matter how much money a bank says they’re willing to lend you, you should not take it. After paying their monthly mortgage, many first-time homebuyers cannot afford other expenses, including clothing, utilities, vacations, and even food. You’ll want to consider the whole cost of the house, not simply the monthly payment, when considering how much of a loan to take out. Think about the cost of property taxes in your city, the cost of homeowners association (HOA), the cost of homeowners insurance, the cost of maintaining or improving the house, and the cost of closing fees before purchasing a home.

5: Do You Have a Significant Savings Account? 

With short-term goals like buying a house in mind, keeping savings in an accessible, safe vehicle that still provides a return can be difficult. Even if you’re eligible for a large mortgage, you’ll still have to fork over a sizable down payment (3.5 percent to 20 percent of the purchase price) and closing expenses to get the ball rolling.

A certificate of deposit (CD) may be a realistic option if you have a goal of one year to three years in the future. It won’t make you rich, but you won’t lose any money either. Investing in short-term bonds or a fixed income portfolio has the same benefits as investing in stocks in that it provides growth while also shielding you from the market’s volatility.

If you want to buy a house in the next six months to a year, you’ll want to keep your savings in the bank. A high-interest savings account may be the best choice. If the bank goes under, you’ll still be able to access up to $250,000 of your money if it’s FDIC-insured. 

6: Who Will Help You Find a House and Help You With the Purchase? 

Using the services of a real estate agent will help you find properties that fit both your demands and your budget. Then, they’ll show you around the properties. They can help you with all aspects of buying a house, from making an offer to securing financing to completing the necessary paperwork.

The knowledge and experience of an experienced real estate agent can shield you from any hazards that may arise throughout the transaction. Most agents are compensated with a percentage of the sale price which the seller usually pays.

The Buying Process

Now that you’ve decided to buy a home let’s talk about what to expect during the actual purchasing process. Offers and counteroffers are flinging themselves around like bullets in a hurricane. You can, however, go through the procedure with your sanity intact if you are prepared for the hassle (and the paperwork). As a general rule of thumb, here are the steps you can expect:

1: The First Step is to Find a House. 

Remember to use your real estate agent, explore listings online, and drive about the communities you’re interested in search of for-sale signs when looking for a home. Put out a call to your friends, relatives, and coworkers to see if they have any leads. You never know where you’ll get a nice lead or reference on the house.

Before going to open houses, make sure you have an agent (or at least the name of someone you’re meant to be dealing with) on hand and don’t stroll in without them. You can see how interacting with a seller’s agent before contacting your agency may not be in your best interest. To save money, consider properties that haven’t been developed to their full potential.

For the time being, it may be worth it to put up with the terrible wallpaper in the bathroom if that is the only way you can manage to move into a home you can afford. Don’t let minor flaws in a home deter you from purchasing it if it otherwise satisfies your needs (such as location and size). To move up the property ladder faster, first-time homeowners should look for a home they can make improvements to.

2: Think About and Obtain Financing for Your Project 

You must take care of your finances. A solid credit score, a history of timely payment of bills, and a debt-to-income ratio no higher than 43 percent are generally required to secure a home loan. 2 When it comes to mortgages these days, lenders want to keep borrowers’ monthly gross incomes under 28 percent of their gross monthly income. Still, this percentage might fluctuate substantially depending on the local real estate market. 

Choosing a lender and filling out an application are the first steps in the process. The lender has the authority to provide the borrower with a pre-approval for a specific sum. Even if you already have been preapproved for a mortgage, your loan may not go through at the last minute if you do anything that affects your credit score, such as financing a car purchase.

Discrimination in mortgage lending is prohibited by law. It is possible to take legal action if you believe you’ve been subjected to discrimination on the basis of one or more of the following factors: your race, religion, sex, marital status, reliance on public assistance, national origin, handicap, or age. The Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development can be contacted to file a complaint (HUD). When looking for a pre-approval or a mortgage, don’t be tied to your present financial institution: Even if you’re only eligible for one form of loan, do some research. 

Fees and interest rates on mortgages can be wildly different, which makes comparisons difficult. An alternative lender is also suggested by several authorities. Even if you are approved for a loan, it does not guarantee that your loan will be funded. There is a constant flux in underwriting requirements, lenders’ risk assessments, and the markets for investors. As soon as the client signs the escrow documents, he or she is alerted that the lender has halted funding on their loan program within 24 to 48 hours of the close. If you have a second mortgage lender who has already pre-qualified you for a loan, you have another option for keeping the process on track.

3: Make an Offer

Any conditions you choose, such as the buyer picking up your closing fees, will be considered by your real estate agent. Afterward, the seller’s agent will either accept or counter offer your offer, depending on the terms of the agreement. You decide to accept the offer or keep going back and forth until you either reach an agreement or call it quits. Check your finances before submitting an offer. Costs such as expected closing costs, commute expenses, and any necessary repairs or appliances that must be installed before moving in are all considered at this point. 

Think about the future: Higher utility rates, property taxes, or neighborhood association fees can be a surprise if you’ve never encountered them before while moving from a rental or an apartment. You can obtain an idea of how much money you’ll have to spend each month by requesting a year’s worth of water and energy bills. After a good-faith deposit is made, the escrow process begins. Sellers put their homes in escrow for a short period of time (typically 30 days or less) so that you can inspect them and make an offer if there are no major issues found.

4: Have Your House Inspected

Though your new home may appear to be in immaculate shape, there’s no substitute for a skilled professional’s inspection to ensure its quality, safety, and general condition is intact. Assuming there are serious faults in the home, you can usually get your deposit back if your home inspection reveals anything that the seller didn’t disclose. Other possibilities include negotiating with the seller to have them make the repairs or lowering the selling price.

5. Say Goodbye or Keep Moving Forward 

If you and the seller can come to an agreement, or if the inspection turns up with no major issues, you should be able to seal the sale. Closing entails signing a slew of documents in a short amount of time while crossing one’s fingers that nothing goes wrong. As your purchase nears completion, you’ll need to handle and pay for a variety of issues, including obtaining private mortgage insurance or piggyback loan if your down payment is less than 20 percent, conducting a title search to ensure that no one else claims to the property, and filling out the paperwork for your mortgage.

Special Terms for First-Time Homebuyers

The concept of “first-time homeowner” may seem obvious, but it is possible to qualify even if you have no previous experience in the market. It’s possible for folks who want to buy their first house but don’t have the 20% down payment to acquire a federally backed loan. There are many state programs and tax benefits available to them. Native Americans and veterans, for example, maybe eligible for further financial support. To qualify as a first-time homebuyer, a person must meet one or more of the following criteria:

• 3 year no-homeownership rule violated by an individual. If the preceding qualifications are met, a spouse is also considered a first-time homebuyer. To qualify for a first-time buyer’s credit, you and your spouse must have previously owned a property.
• An unmarried parent who has only owned a home with their ex-spouse while married
• Unemployed housewife with no previous experience owning property on her own.
• A person who has only owned a primary dwelling that is not firmly affixed to a permanent foundation.
• Ownership of a property that is in violation of state, local, or model building codes that cannot be remedied for less than the cost of erecting a new structure.

What’s Next, After Buying New Home? 

1: Keep Saving, don’t stop.

Getting a new water heater or having to replace the rain gutters are just some of the huge expenses that come with becoming a homeowner. Having an emergency fund in place for your house can ensure that you aren’t caught off guard when unexpected bills arise. 2: Maintaining Regularly

You’ll want to take great care of your house because you’re investing so much money in it. Regular maintenance can reduce repair costs by allowing small and controllable problems to be treated before they become out of hand. 

3: Don’t worry about the Housing Market. 

It only matters how much your house is worth when you decide to sell it. Having the freedom to sell your property when you choose, rather than having to sell it because of a job transfer or financial hardship, is the most important factor in determining whether or not you make a profit. 

4: When it comes to your retirement, don’t rely on the sale of your home.

It’s still important to save as much as possible for retirement, even if you buy a house. You won’t always walk away with a fortune when you sell your home, despite what some people made during the housing boom. The money you spent on monthly mortgage payments can now be utilized to help pay for some of your living and medical expenses in retirement once you’ve paid off your mortgage.

This brief summary can assist you in filling up any knowledge gaps you may have about the house buying process. Keep in mind that learning as much as possible ahead of time will make the process much less stressful and help you choose a home that fits within your budget.