For many first-time home buyers, buying a new home may result in a dream come true. As a first-time home buyer, you probably have numerous questions and concerns. This is completely normal! While each first-time home buyer has a unique experience, there are some steps that are commonly used during most home buying experiences.
Step One–Budgeting. Before you can start looking for a home, you need to figure out how much you can afford to pay each month for the home loan. Sit down and make a list of all your monthly expenses. Be sure to give yourself a buffer for emergencies and include a figure for savings. Although there are other programs available that do not have the same debt to income ratio requirement, it is a good idea not to plan on a monthly house payment that is more than one-third of your income. Keep in mind that your house payment will also include taxes and insurance as well as the principal and interest on the loan.
Step Two-Down Payment. How much down payment is required will depend on various factors such as your credit history, the type of loan you qualify for, and the state you live in. It is a good idea to plan for a down payment of five percent or more; however, many states offer programs for first-time home buyers that will assist with the down payment. Some programs even pay the entire down payment for you.
Step Three–Credit History. Obtain a copy of your credit history from all three major reporting bureaus. Make sure everything on the report is accurate and contest any inaccuracies. If you have any unpaid debt it may show up on your credit report. Try to pay off any current debt, close unnecessary lines of credit such as store cards, and bringing delinquencies current.
Step Four–Financing. Sit down with a Better Homes and Gardens® real estate agent who specializes in helping first-time home buyers get pre-approved for financing. Note that “pre-qualified” and “pre-approved” are not the same thing. “Pre-qualified” simply means that based on information you provided a lender they think you are qualified for a loan in the amount indicated. The pre-approval process actually requires you to fill out a formal application and supply documents and proof of income and debts. If you are pre-approved then you are much closer to buying your first home.
Step Five–Wish List. Before you set out to look at homes, make a needs list and a wish list. Your needs list includes things that are essential in your new home while your wish list includes things that would be great, but are not essential. Things you may wish to consider for your needs/wish lists include location, school systems, garage, number of bedrooms and bathrooms, and whether you want new construction or a fixer-upper. When you make these lists, think about how long you plan to stay in the home, how much time you have to take care of maintenance and yard work, how much time and money you have to remodel, and how important each item on the list is to you so that your Better Homes and Gardens®real estate agent will have a better idea as to what you are looking for when you start the home buying process.
Above all else, don’t rush into the home buying process. Being a first-time home buyer should be an enjoyable and positive experience, but not one to be taken lightly. Purchasing a home is a huge commitment–likely the biggest financial commitment you will make during your lifetime. By following these simple steps, you should be able to find the home of your dreams!
1. Determine Your Wants and Needs