Buying your first home is an exciting journey. Knowing how to prepare and what to expect during the home-buying process is key to keeping things simple with a clear plan of action. From financial preparation to the home search and negotiating an offer on your dream home, get strategies to simplify the process of purchasing your first home in this comprehensive guide.
Financial Preparation
What is the first step in preparing for homeownership? Financial planning is the most important first step for a first-time home buyer to prioritize. Your home will likely be the largest debt you’ll carry during your lifetime. Set a realistic home budget and start saving up for a down payment now.
How much house can you afford without financial strain? A first-time home buyer may choose between a mortgage pre-approval or pre-qualification when creating a budget and preparing to buy a home.
- Mortgage pre-approval: Lender letter stating you are preliminarily financially qualified to purchase a home up to a certain value; takes credit score, credit history, debt, income, and assets into account and may take 7-10 days to receive
- Mortgage pre-qualification: Fast estimate of a mortgage amount you are likely to be approved for with no paperwork or hard credit check; usually available instantly and less attractive to sellers when making an offer
What to expect in the first year of owning a house when finances are considered? Factor in the first year’s costs, like mortgage payments, property taxes, maintenance and repairs, homeowner’s insurance, and Private Mortgage Insurance (PMI) if necessary.
The home-buying process may include making a down payment for certain loan types.
- VA and USDA Loans: No down payment requirement
- FHA Loans: As little as 3.5% down
- Conventional Loans: 3-20% down
You might need to meet specific criteria to qualify for different types of loans; for example, FHA loan applicants must have a minimum 580 FICO® score. Do your research and know which types of loans are available to you to get a clear understanding of your upcoming down payment needs.
How much should a first-time home buyer save for a down payment? The median home sale price in the U.S. is about $412,300, so the amount to save for a down payment could be:
- $0 for VA or USDA loans
- $14,430 (3.5%) for FHA loan
- $12,369 (3%) to $82,460 (20%) for a conventional loan
Set your official savings goal, then reduce your expenses on non-essentials. Any raise or cash influx you receive should be put into a high-yield savings account to earn you interest while you build your savings.
Assembling Your Home Buying Team
Having the right agent on your side makes all the difference when buying your first home. You need a great buyer’s agent to advocate for you and:
- Find homes that meet your criteria
- Negotiate, draft, and send offers
- Manage paperwork and closing
Make sure you end up with a qualified, professional agent by asking friends, family, and neighbors for their recommendations. Look for homes similar to yours in town and find out who the buyer and seller agents were. It’s rare to find the perfect agent on the first try, so plan on meeting with 2-3 agents.
The Home Search Process
Figure out the home features and criteria that are essential vs. nice to have, then have your agent find suitable properties so you can begin viewing potential homes.
Consider what you can’t live without and what you want, like:
- Square footage min/max
- Number of bedrooms/bathrooms/levels
- Proximity to schools, medical care, groceries, etc.
- Lot size
By identifying needs vs. wants, you’ll get a clearer picture of your dream home. That makes the next step, viewing properties, much more focused. You’ll know exactly what you’re looking for!
Making an Offer and Negotiating
What goes into a strong offer? Offering a competitive price for the home, proof of your pre-approval, and additional earnest money (up to 5-10%) will bolster any offer.
You can waive contingencies, avoid asking for extras, and leave plenty of wiggle room for the seller on closing dates and possession to sweeten the pot. Always take your agent’s advice to heart—their experience can help a lot in offer negotiations.
Embracing the Journey of Homeownership
With financial preparation and a skilled agent by your side, the home search process and offer/negotiation stage can be easier for a first-time home buyer than you think. Getting help from experts is the best way to ensure you’re financially equipped to buy a house. Are you feeling overwhelmed by the financial preparation needed to buy your first home? MyStages® financial professionals can help.
