How To Become A Homeowner: A First-Time Home Buyer Guide

First Time Homebuyer Guide To Homeownership

Buying a home, especially your first, can be daunting. You might be committing most of your current savings and future income to the purchase, and it can feel like a big risk.

But if you have decided that now is the time, becoming a homeowner doesn’t have to be intimidating. We’ll guide you through the key stages on the path to homeownership, so you are better prepared.

How Much Does Owning a Home Really Cost?

If you find a great mortgage, your monthly payments might even be less than rent. However, mortgage premiums are not the only costs you will have to cover with property ownership. There are many hidden costs to homeownership that we will discuss below.

When you become an owner, you will be responsible for maintenance and the associated costs. There are also less obvious fees, like home insurance and property taxes. If you aren’t aware of these costs, your monthly expenses could come as a shock.

Homeowners insurance offers protection against damage from extreme weather, fire, or theft. Lenders require homeowners’ insurance to ensure they don’t risk their investment.

Your mortgage lender may offer home insurance that will be added to your monthly premiums. However, you might find you get a better deal if you arrange your own coverage.

When it comes to maintenance, you might find it costs as much as 1.5% of the market value per year. While there might be some things you can delay if you don’t have the money, that won’t always be the case. You will also have to maintain the home to protect your investment, and you may have to meet the requirements of the HOA if you belong to one.

What Can You Afford to Spend When Buying a Home?

It can be tempting to stretch your finances as much as possible to buy the largest home you can afford. But not spending the maximum amount possible leaves you with an emergency fund, more money to enjoy your life, and to make investments.

There is also more risk if you choose to put all of your money into your property purchase. Your financial situation might change for the worse, or the economy could take a downturn.

Fortunately, you can use an affordability calculator or get assistance from a mortgage broker or lender, so that you know where you stand.

Saving a Down Payment

Some types of mortgage allow you to purchase without having to save for a down payment, but others might require 3.5% of the purchase price or more. However, in some cases, if your finances are not great or if you have a low credit score, you might be required to pay 20% as a down payment.

Mortgage Preapproval and Credit Score

Before you begin seriously searching for your new home, you need to be sure what mortgage you can afford. If you are not preapproved for a mortgage, you may waste time looking at houses that are out of your price range.

Before you start looking at preapproval, it is often a good idea to check your credit score. If your credit is good, you will get better terms on your mortgage. This could mean a lower interest rate, something that will save a large amount of money on the loan.

Preapproval shouldn’t be confused with pre-qualification, as they are not the same thing. With preapproval, the lender will take a deeper look at your finances to better assess what you can afford. 

When you are preapproved for a loan, the seller can see that you are a serious buyer. You can show your preapproval letter to a seller’s agent to show that you can afford the property. Sometimes, this is a requirement to be shown the home. 

After you have been preapproved, you need to avoid doing anything that could change your financial situation. Applying for other credit, missing debt payments, and changing jobs are just some of the things that could change the lender’s calculation and mean you aren’t approved for the loan you need.

Help for First-Time Buyers

Buying your first home can be particularly challenging, but fortunately, there is help available. First-time homebuyer programs can provide grants to assist with down payments, and they could offer favorable loan terms as well.

Depending on your location, the state or local community may offer first-time buyer assistance. As a first-time buyer, you can also benefit when choosing FHA loans, USDA loans, and other federal programs.

Should You Hire a Real Estate Agent?

Whether you are a first-time buyer or not, hiring a buyer’s agent is a good idea. Though it is easier than ever to search for homes online, there is still a huge advantage in hiring a real estate agent to represent your interests.

When buying real estate, there are large sums of money at stake; your money! So, it really is in your best interests to hire a great buyer’s agent to make sure you get the best deal on a home you’ll love. A buyer’s agent will help in many ways:

Helping you find a property

Your real estate agent can filter available properties so that you waste less time with homes that are clearly not suitable.

Making appointments

Your buyer’s agent will arrange showing appointments; just let them know when you’re going to be available. While you could do this yourself, hiring an agent means this is another thing you don’t have to worry about.

Local property values

Your real estate agent should have deep knowledge of the local housing market. This allows them to advise you when homes are priced too high, and they can help you make an offer that is more likely to succeed.

Negotiations

During the homebuying process, many situations require negotiation. Whether it’s details in the contract, the home inspector’s report, or the date the sale closes, negotiation is inevitable. Your real estate agent will understand the process of buying a home and be experienced in dealing with these types of negotiations.

Advice and support

Your agent will be there to guide you through the process and answer any questions you may have. They will understand the legal requirements and be able to advise you on every stage of the process. They will make the home buying experience smoother, saving you unnecessary worry and costs.

Finding The Right Home

When you have your finances in place and have hired a real estate agent, you are ready to begin your property search. Every home buyer has different expectations and requirements, and you need to be clear about what yours are.

To help you better focus your search, try answering the following questions:

What are your must-haves?

There will be certain things that will be essential for your new home. If you have kids or plan to in the near future, you will need a certain number of bedrooms. But if the opposite is true, the number of bedrooms won’t be a deal-breaker.

Can you imagine yourself living in the home?

Can you see your possessions and furniture in the home? Will your furniture fit, and will it suit the space available? What changes would you like to make, if any?

Does the home excite you?

If you want to tell people about the house, it’s a good indication that it ticks most of your boxes. You might also feel protective of the property, a sign that it could be your dream home.

Finding the Right Location

You could find what appears to be your ideal home, but if it’s located in the wrong place, it won’t be the dream property it could be.

Consider how far away it will be from the places you often visit. How far will you have to commute? How close do you want to be to entertainment locations, grocery stores, friends, and family? If you have children, what are the schools like, and are there similar-aged kids in the area?

Are the types of homes you are interested in located in the neighborhood? What is the crime rate? How bad is the traffic on the streets you will use daily?

If you think you’ve found the right neighborhood, try visiting at different times of the day and night to see if it is as good as you expect. Maybe you’ll meet a friendly neighbor who will give you more information about the area.

Should You Have a Home Inspection?

When the seller has accepted your offer and you’ve signed a contract with them, you’ll want to ensure you’re not buying a home with major issues. The home inspection is vital to prevent you from buying a money pit with hidden problems.

While the house might appear perfect, it’s very likely the home inspection will uncover some issues, even with relatively new properties. Minor issues and normal wear and tear are to be expected and shouldn’t be a cause for concern. However, if the report indicates serious problems, the repairs might need to be negotiated with the seller.

If you aren’t able to come to an agreement with the seller for repairs or a price reduction, it might be better to walk away. If there is an inspection contingency in the purchase contract, any earnest money deposit will be returned, and you can continue your search.

Though a home inspection can cost hundreds of dollars, it could save you many thousands and prevent a huge mistake.

Mortgage Approval

With your offer accepted, you will need the cash to close the sale. Your lender will begin the underwriting process, once again looking at your financial situation, but in more detail than during preapproval. You will have to provide financial statements and proof of income and assets.

The lender wants to ensure the risk isn’t too high when lending to the homebuyer. As part of the process, the home will have to be appraised. The home appraisal should show that the property is worth the offer price; otherwise, there could be problems with the loan approval.

The lender wants to know that they will recoup their investment if the borrower defaults and the property is foreclosed. Though the appraisal is mostly for the benefit of the lender, it is the buyer who pays the appraiser.

Title Search

In this period, a title company checks the property’s title for any issues. This ensures that the seller has the legal right to the property without any other claims to it, like liens.

If the property has a clear title, a title insurance policy can be issued. This insurance protects both the lender and the homebuyer against claims over ownership.

Dealing With Closing Costs

You will pay closing costs when the sale closes. These closing costs are fees for services like the home inspection, title search, appraisal, homeowners’ insurance, property tax, and more, depending on your situation. 

It is sometimes possible to negotiate with the seller so that they cover some of these costs. Otherwise, this is a significant cost that you will need to be ready for.

Closing Statement

A few days before the closing date, you should receive the Closing Disclosure. This document lays out the terms of the home loan and provides information about the documents you need to bring on closing day.

You should check the details in this document to make sure they are correct, so that any issues can be dealt with before the sale closes.

Final Walkthrough

Just before the closing date, you will have a final opportunity to ensure that the property is in the condition it should be. During the final walkthrough, check that there isn’t any unexpected damage or items missing that are part of the sale.

Closing Day

If things have gone to plan, everything should be ready for closing day. The date of closing can change if unexpected things happen during the process. 

On closing day, the home will legally become yours, and you will get the keys. But before then, there are still a few important things to do.

You may be required to attend a closing meeting, where you will need to bring all relevant paperwork, including a photo ID and a cashier’s check or proof of transfer for the down payment and closing costs.

When everything has been checked and you have signed the documents, the home will be yours. You then need to arrange the move to your new property before you can begin enjoying homeownership.

Summing Up How to Become a Homeowner

Despite how challenging the homebuying process might seem, your real estate agent and other professionals will be available to help you through these stages.

Putting down roots when becoming a homeowner is an important step in anyone’s life and can help build a successful future. But if you are prepared and willing to do some research, you will have an easier time finding your dream home.

About the author: This article was written by Luke Skar of MadisonMortgageGuys.com. As the Social Media Strategist, his role is to provide original content for all of their social media profiles as well as generate new leads from his website.

We provide award-winning customer service to clients who need to purchase a home or refinance an existing mortgage.