10 Tips for First-Time Homebuyers
Owning a home comes with added expenses and advantages. In addition to the down payment and mortgage, you’ll have to pay for closings costs, insurance and maintenance. To figure out whether it’s financially smarter to buy or rent, calculate and compare total home ownership costs to rental rates.
So, you have already done the math and home ownership appears to a better option than renting. Even if your calculations indicate owning is a smart financial move, there are ways to make the home-buying process less stressful and more affordable. Before taking the plunge, there are some additional benefits to asking yourself some tough questions and reviewing a few quick tips.
- Be picky, but don’t be unrealistic. There is no perfect home.
- Consider your monthly costs. Do your homework before you start looking. Decide specifically what features you want in a home and figure out whether you can comfortably cover the full costs of ownership of those features.
- Get your finances in order. Review your credit reports, income and debt obligations. Be sure you have enough money to cover your down payment and your closing costs. Before applying to the Bank of Mom & Dad, note that outright cash gifts can result in big tax bills. Anyone can give anyone else up to $13,000 a year without worrying about gift taxes, but take care to document the loan to keep the Internal Revenue Service happy and also to disclose it to your mortgage lender, since it might affect how much in additional debt you qualify for. Forms for such transactions are posted at sites like Nolo.com. There’s also the possibility that you will qualify for home-buying assistance from the federal government.
- Prequalify. Talk to a lender and get prequalified for a mortgage before you start looking. This is also an ideal time to get a rate lock. A rate lock gives you protection from financial market fluctuations that could affect your interest rate range.
- Don’t ask too many people for opinions. It will drive you crazy and can cause unneeded stress. Of course, you will want some counsel. Select one or two people you trust to turn to if you feel you need a second opinion.
- Decide when you could move. Seems like a simple task, but is often overlooked. When is your lease up? Are you allowed to sublet? This can determine how long an escrow should be to comfortably make the transition.
- Think long-term. Are you looking for a starter house with the idea of moving up in a few years or do you hope to stay in this home longer? This decision may dictate what type of home you’ll buy as well as type of mortgage terms that suit you best.
- Don’t let yourself be house poor. If you max yourself out to buy the biggest home you can afford, you’ll have no money left for maintenance or decoration or to save money for other financial goals. Don’t forget to also factor in yearly property taxes. Would a move across a county line save you money in taxes? Weigh all your options so the final outcome of ownership doesn’t leave you short.
- Trust…but verify. Insist on a home inspection and if possible get a warranty from the seller to cover defects within a reasonable amount of time.
- Get help. Consider hiring a REALTOR® as a buyer’s representative. Unlike a listing agent, whose first duty is to the seller, a buyer’s representative is working only for you. And often, buyer’s reps are paid out of the seller’s commission payment.
By staying close to your goals and doing your homework, the home-buying process can be a positive experience.