Buying a home for the first time can be a daunting experience, but it can also be exhilarating if you get it right. Think about the benefits of choosing the right property and how they will accrue to you over the next 10 years. You’ll be in the right place, enjoying the right lifestyle with the right people. It has the potential to be incredible.
This post is all about helping you navigate the market. We guide you through several essential tips for first-time home buyers like you. By the end, you should have the confidence to step into the property market and buy a house that really suits you.
Here’s our buyers guide for first time home buyers:
Plan the real cost of home ownership
If you’re thinking about buying a home for the first time, don’t just look at the sticker price. Instead, plan for the real cost of home ownership.
This is a mistake that many people buying a house for the first time make. They think about how much the mortgage is going to cost directly and don’t think about the ancillary costs like property taxes, structural maintenance, and homeowner insurance. You’ll want to factor all of these in by adding about 20% to your total budget. For example, if your mortgage is $1,000 a month, you’ll want to plan for monthly direct expenses on the home around $1,200 a month.
Also use the PITI acronym: principal, interest, taxes, insurance. If the 20% rule seems too vague for you, you can calculate the cost of each of these components individually to get a more accurate estimate of your cost of living.
Research the neighbourhood, not just the house
Many people make the mistake of looking at the house as a standalone property and not thinking about the context. As any experienced realtor or real estate investor will tell you, the neighbourhood matters just as much as the property itself, if not more.
For example, you’ll want to consider the traffic and commute times from the neighbourhood. This impacts your daily quality of life more than anything else. Try driving from the house to your office during rush hour to see what it’s like.
You also want to get a sense of the neighbourhood vibe and make sure the area aligns with your lifestyle. Try visiting the streets at different times of day, night, and at the weekend to see what it’s like. Also explore whether there are any future developments planned in the area. These can impact your property value both positively and negatively. For example, changes in zoning laws to commercial can lower the value of nearby real estate, while upcoming city council projects involving infrastructure can increase the value of your real estate.
Interview several real estate agents
When you’re buying a home for the first time, it’s a good idea to interview several real estate agents, not just one. This is because your estate agent performs more than just one role. Not only are they your primary advocate, but they’re also a guide and a negotiator. You need somebody with all of these skills if you’re going to get the best possible deal on a new property.
Don’t hire the first agent you see. Meet them at an open house. Instead, do your homework and think about who’s going to generate the best outcome for you. It’s a good idea to interview two or three agents before picking one. Good agents will always submit to this process because they’ll have confidence in their ability to serve you.
Don’t skip a professional home inspection
When you’re a first-time buyer, it’s tempting to skip a professional home inspection. You want to save on costs wherever possible, and this item looks like something you can avoid. Once you find a house and your offer is accepted, you are in the escrow phase. This is when home surveys are essential and the most critical protective step for buyers.
For example, let’s say you make an offer on a property for $200,000. Spending that money and then discovering that the home isn’t fit for human habitation is not an attractive prospect. Fortunately, a home survey can tell you what the property is really worth and warn you ahead of time of any issues.
Appraisals, which many lenders require, also determine the financial value of your home. For example, experienced appraisers inspect things like electrical panels, HVAC systems, and foundations. They make sure that the structural integrity of the home is intact and that it’s fit for living in.
Audit your finances before making any down payments
Before you make any down payments on a property, make sure you audit your finances properly. Many people focus exclusively on the down payment but forget the additional costs involved in moving home. Before you start browsing real estate apps, make sure you have a clear picture of your total financial situation so you know what you can afford.
Your debt-to-income ratio is a critical factor. Lenders often use this to calculate how much you can comfortably borrow. Make sure you keep your total debt payments, including your future mortgage, below 36% to 43% of your gross monthly income.
Also keep an eye on your credit score. The higher your credit score, the lower the interest rate you’ll pay, because lenders will see you as more secure. Even though the difference in interest rates might only be 1-2%, this can result in massive savings over the lifetime of your mortgage, especially if you have a 30-year loan.
Get pre-approved
Finally, you’ll want to get pre-approved instead of just pre-qualified. Pre-qualification is just a surface-level estimate of what you might be able to borrow based on self-reported data. It’s a nice tool, and many lenders use it, but it’s not something that’s set in stone.
Pre-approval is the real deal. This is when a lender says that they will actually lend you a certain amount of money when you take out a mortgage. You’ll need to provide financial verification, of course, but once this is complete, real estate agents will take you more seriously.
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