9 Things Every First-Time Homebuyer Needs to Know

Buying your first home can be stressful and overwhelming. You might worry that you won’t get approved for a mortgage or find the right house. But, becoming homeowners can also be exciting.

To help you enjoy the experience and calm your nerves, we’ve put together a list of nine things every first-time homebuyer should know.

1. Find the right agent

The right real estate agent is your partner throughout the home buying process, no matter the market condition. As a first-time homebuyer, find an agent you “click” with and who is patient and willing to educate you about the whole process.

Trust me, having the right agent makes a world of difference. When Drew and I were buying our home, it took us a while (six months!). Part of the reason it took so long was that it was a sellers’ market. Several times, we’d be standing in a house (that went on the market that day), ready to make an offer, only to learn that the sellers had just accepted another offer.

Another reason it took so long is that we were scared to pull the trigger. Buying a house is a big commitment financially, and we were afraid we would make a mistake. Thankfully, our real estate agent was incredibly patient and took the time to explain the process to us. When she realized that we were scared, she asked us about our fears and helped put them to rest so that we were finally ready to submit an offer.

Read also: 5 Things to Remember When House Hunting for the First Time

2. Select the right mortgage lender

Not all mortgage lenders are created equal, and choosing the right one is just as important (if not more) than finding the right real estate agent. Finding the right lender isn’t just about choosing the company that offers you the lowest interest rate because that will depend on your credit score; it’s about finding someone willing to work with you if the worst happens and will explain all your options.

I recommend finding a local lender, if possible. Our lender told us to call them immediately if we lost our job or were otherwise unable to make our mortgage payments. Since the lender is local, they’re part of the community. They don’t want to see us out on the street, and they don’t want another foreclosed home wasting away in the neighborhood. Larger lenders usually aren’t willing to work with you to find a solution if you miss a payment or two.

A good lender will also talk in-depth about your different mortgage options and the benefits and disadvantages of each type. Not only will they discuss the difference between a 30-year and a 15-year fixed-rate loan or an adjustable-rate mortgage, but they’ll also talk about the different types:

  • conventional mortgage: The government does not guarantee the loan, but there are some targeted options for first-time buyers that require as little as a three percent down payment. If you put a small down payment down, you will likely have to pay for private mortgage insurance (PMI) each month.
  • FHA loan: The mortgage is insured by the Federal Housing Administration (FHA) and allows you to put down a down payment as low as three and a half percent. 
  • USDA loan: The loan is guaranteed by the U.S. Department of Agriculture and geared toward rural homebuyers. USDA loans usually don’t require a down payment.
  • VA loan: VA loans are guaranteed by the Department of Veteran Affairs and are for current and veteran military service members. They usually don’t require a down payment.

Speaking of down payments, a good lender will also talk to you about how your down payment will affect your monthly mortgage payments.

3. Maintain your credit score

Once you start the mortgage application and approval process, you don’t want to do anything that will affect your credit score too much (either for better or worse). Doing anything that changes your credit score significantly could mean you lose your financing because lenders want to see that your behavior patterns are consistent and that you can reliably make future payments. That means don’t open a new line of credit or make any major purchases once you start the process.

Read also: 6 Reasons to Strive to Live a Debt-Free Lifestyle

4. Opt for a preapproval letter

A mortgage preapproval letter is your lender’s offer to loan you a certain amount of funds under specific conditions, and it can make a world of difference during the home buying process. 

Getting preapproved lets you know how much you can borrow so you don’t fall in love with a house you can’t afford. It also shows home sellers and real estate agents that you’re a serious buyer. It gives you an edge over other potential buyers because sellers will know that the sale likely won’t fall through due to financing issues.

5. There are a lot of costs involved

When you’re planning to buy a home, you probably think about some of the significant costs, like your down payment and your monthly mortgage payment. But, there are other costs you need to consider. For example, you’ll need funds for closing costs, inspections, and an appraisal. Then, after you’ve closed on the house, you’ll need money for monthly expenses and repairs or upgrades.

Read also: Saving Money: 9 Tips to Save More This Year

6. Stick to your budget

Your lender might offer to loan you more money than you’re comfortable borrowing. But that doesn’t mean you have to spend that full amount. The lender knows your income and debt-to-income ratio, but they don’t know how much you need each month for groceries, utilities, gas, and insurance. 

Read also: 10 Tips for Keeping Your Energy Bill Down This Summer

So take a look at your own monthly budget to determine how much you’re comfortable spending for a house. Then, stick to it. I recommend looking at properties below your price limit to give you wiggle room, especially in a competitive market when you might get into a bidding war.

7. Do your due diligence

After you’ve submitted an offer and the sellers have accepted it, it’s not just a waiting game until closing; you have some work to do. You’ll need to do your due diligence to ensure you’re buying the right home for your family. 

Besides checking out the neighborhood and local crime statistics, you’ll also need to pay for a home inspection. The inspector will look for cracks, make sure the air conditioner is working, check the electrical panels, look at the roof, inspect the plumbing, and so much more. They’ll tell you what’s wrong with the house, so you know what needs to be fixed and can make sure you’re not buying a money pit.

Your lender will also probably require you to have the home appraised. This is because they agreed to loan you a certain amount of money, but they want to make sure the house is worth the amount you’re paying. 

8. Find the right home insurance policy

Home insurance covers the cost to repair or replace your house and belongings if they’re damaged by a covered incident. It also provides coverage if someone is injured on your property.

Your lender will require you to buy home insurance before you close on the house. Just make sure you buy a policy that covers the cost of rebuilding your home if it’s destroyed.

9. Negotiate with the seller

Besides negotiating the actual selling price and who will pay the closing costs, you can negotiate other things with the seller — especially after you’ve received the report from the home inspection. You might save money down the road by asking the seller to make for some of the necessary repairs before closing, or they might be willing to lower the price to cover the cost of repairs you’ll have to make later on.

Throughout the home buying process, your negotiating power will depend on the current state of the housing market. For example, it will be more challenging to get everything you want if there are more buyers than homes for sale because sellers can easily go with another buyer.

first time homebuyers holding keys to new home