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Whether you’ve spent countless hours watching home renovation shows (Fixer Upper, anyone?), have your future home’s decor planned out room-by-room, or find yourself daydreaming of what life would be like if you bought the house on your daily commute that just went up for sale, the home buying process can leave first-time buyers (or even those who haven’t bought a home recently) confused on where to start once they’re ready to take the leap. So, where to start?
Budget for upfront expenses.
Many financial institutions (including Firefly) offer a first-time buyer program that allows for a minimum down payment often less than a traditional mortgage, but the expense doesn’t stop there. In addition to a down payment, plan for closing costs
(typically 2-5 percent of your loan amount), updates or repairs you’d like to (or need to) make right away, home furnishings, etc.
Get your credit history in order.
When’s the last time you checked your credit? No matter how you finance your mortgage, credit history will play a big role in how much you qualify for and the interest rate you’ll pay on your loan. Prepare by reviewing your credit reports, working to fix any errors (if needed), and learning more about what makes up your credit score
Bonus tip #1:
Be mindful when taking out other large loans around the same time you plan to get pre-approved and/or start your mortgage. Opening and closing multiple loan or lines of credit around the same time can have a negative impact on your credit score.
Get your details in order.
Before getting pre-approved, gather commonly-requested information that the lender will ask for. This could range from details about your assets (what you have in your checking and savings accounts), current loans, and income. Having everything together from the beginning will make the application process a lot easier for you and
the individual processing your application.
Do your homework and get pre-approved before you really jump in. Explore mortgage options
available from different lenders before you dive seriously into your search as they may offer different terms, interest rates, loan types, etc. Once you choose a lender that fits your needs, get pre-approved. Doing so shows real estate agents and sellers that you’re a qualified buyer and are serious about making a home purchase; this can help the rest of your home buying process to go smoothly
. If you’re only casually looking at homes and not ready to buy yet, hold off as pre-approvals often have an expiration (Firefly mortgage pre-approvals, for example, are good for 120 days) and do require your credit to be pulled.
Great – now you’re ready to buy. Right? Maybe. But there’s more to think about when buying a home. Let’s explore the process a bit more.
Buy what you should not what you can.
Ever heard the term “house poor”? Instead of basing your price range on the maximum loan amount you are pre-approved for, which can be tempting, look at what you can realistically afford each month based off of your typical monthly income and spending habits. While it isn’t anything you want
to think about, also plan for the worst. If you lost income or had emergency expenses, could you still afford to make your payments without going into additional debt? Don’t forget to consider how your utility bills could increase and the addition of a homeowner’s policy, mortgage insurance (if required), property taxes, and association fees (if applicable). If your commute from work would change, consider changes in transportation costs, too.
Bonus tip #2:
Property taxes are generally due every 6 months. To help budget for this, some lenders will offer to pay these taxes directly to your city through an escrow account connected to your mortgage; 1/12 of your annual taxes would be tacked onto your monthly mortgage payment. When it comes time to pay taxes, you’ve already set aside what you owe. Regardless of how you end up paying property taxes, remember this as part of your monthly payment.
Compare your home options.
Weigh the pros and cons of a single-family home, townhome, or condo. You may also want to think ahead to how long you plan to stay in the home you’re currently searching for. Certain features you may not be looking for now can make a big difference when or if you ever sold it down the road. If you do plan to sell at some point, consider things that will make the home you’re searching for marketable to the next buyer as well (like location, schools/neighborhoods, etc.)!
Prioritize your needs and wants.
It’s easy to get carried away thinking about and visualizing your dream home. You’ll likely have to make some compromises on your home search, but narrowing in on ‘needs’ versus ‘wants’ and how important they may be can help you and your realtor find the right fit faster. Make a list of both and revisit it during your search; you may find these change during your search.
Know the market.
Keep a close eye on listings in your price range that fit your needs to know if homes are priced realistically for your budget when you actually
begin looking. Can you afford what you need and want based on what’s out there today? This will also give you a sense of how fast homes are selling and what kind of market you are in
Bonus tip #3:
Listings on some websites appear as “active contingent”; these homes already have an accepted offer, so although you can’t purchase them, they can help you see what is selling well and compare sale prices in the area.
Bonus Tip #4:
If you’re buying in a sellers’ market, you’ll want to find any way you can to set yourself apart from other offers. Try writing a personal offer letter telling a bit about yourself, what you like about the sellers’ home (in its current state), and how you see yourself there. Although financial implications have weight in the decision, many sellers also want to see their home go to those who will love it like they have; not just as a house but as a home.
Find a knowledgeable realtor that fits your needs.
Be deliberate about choosing your realtor. Checking with friends and relatives who have recently purchased is a helpful place to start. Your financial institution or financial advisor may also have recommended realtors. You can even scope out open houses in your area for a realtor that fits your home buying style - do you want someone who will simply arrange showings or do you want someone who’s more proactive on finding a home for you? As a first-time homebuyer, many realtors now charge a fee to the buyers, which historically wasn’t always the case. It may not be much but generally close to $500; it may be something to ask about when picking a realtor.
Don’t skip the inspection.
An inspection helps safeguard you from issues with a home that you may miss with an untrained eye. If major issues do arise, an inspection gives you leverage to withdraw your offer or submit a counteroffer, which may include asking the current owner to fix the problem or for money off your offer or closing costs to do them yourself. Some areas of a home can be hard for an inspector to check, though; for example, it may be hard to check a roof’s condition when covered in snow from a Minnesota winter. Ask what they may not review upfront.
Bonus Tip #5:
Inspections are not part of your loan amount and prices vary depending on many factors
including the size of your home, extra testing done, etc. To be safe, budget $300 - $500 minimum for this upfront cost. You’ll be happy you did!
There’s so much to consider when buying a home but don’t let that take the fun out of the process! Use the resources available to you, ask questions, and take your time to make smart decisions – soon enough you’ll be enjoying all the fruits of your labor.
Contents of this blog article are intended to provide you with a general understanding of the subject matter. However, it is not intended to provide legal, accounting, or other professional advice and should not be relied on as such. Information may have changed since the publication date.