If you are a first-time homebuyer, the thought of undertaking this journey can seem overwhelming. We are here to help make sure you have all the information needed to make the process go smoothly and you can get into your perfect home easily.
What qualifies someone as a first-time homebuyer?
The U.S. Department of Housing and Urban Development (HUD) states that a first-time homebuyer is someone who meets any of the following conditions:
- An individual who has not owned a principal residence for three years. If you’ve owned a home but your spouse has not, then you can purchase a place together as first-time homebuyers.
- A single parent who has only owned a home with a former spouse while married.
- A displaced homemaker who has only owned a home with a spouse.
- An individual who has only owned a principal residence is not permanently affixed to a permanent foundation in accordance with applicable regulations.
- An individual who has only owned a property that was not in compliance with state, local, or model building codes—and that cannot be brought into compliance for less than the cost of constructing a permanent structure.
First-Time Homebuyer Checklist
Are you ready to commit?
Ask yourself these simple questions:
- Am I ready to commit to this home and this area for the next few years?
- Do I have a stable income?
- Do I have an emergency fund for 3 months’ expenses?
If you answered no to any of these questions, it may be wise to wait a little longer. An average loan term can range from 15-30 years and while you do not have to remain in the home for that time, it is still a large commitment.
Don’t skip the pre-approval
There is a difference between prequalification and preapproval. A prequalification letter is simply an estimated amount for a loan but a preapproval letter is an official document that lets you know the exact amount you are preapproved for.
This can help you know what you can afford during your home search, help you make a stronger offer, and allows for fewer surprises during closing.
Maintain your credit
Your credit score is used during the preapproval process for your loan and it is also pulled again before closing. If there are any major changes to this, such as a new line of credit, it can be a major red flag.
This can result in delays with the purchase and issues with your loan. It is best to wait to make any changes until after closing is complete.
Save for a down payment
The typical down payment to save for is around 20% since this allows for you to avoid private mortgage insurance (PMI) on a conventional loan. However, as a first-time home buyer, there are several programs such as down payment assistance loans and grants you could qualify for.
Understand Your Various Loan Options
Research or talk to someone to see which loan is right for you.
- Conventional Loan
- FHA Loan
- USDA Loan
- VA Loan
Don’t forget about closing costs
A closing cost is an expense that goes to the lender in exchange for arranging the various services during the home buying process.
Some of the common closing costs include:
- Attorney fees
- Pest inspection fees
- Appraisal fees
- Homeowners Insurance
- Title insurance expenses
- Discount points
- Property taxes
The exact closing costs are available on a document called a Closing Disclosure and are generally around 2-5% of the loan amount. Some option to help offset the closing costs is to see if you qualify for a government-backed grant or loan.
It is also common to ask the seller to help with closing costs. Called a seller concession, this can be a flat percentage of the total closing costs or the covering of specific fees.
Order the wants for your home
When looking for your first home, it helps to keep a list of your needs, your must-haves or non-negotiables, and just your basic wish-list items that you want but could do without. Maybe it is a two-story home or at least 2 bathrooms. Maybe you can’t do without a garage but could manage without an upgraded kitchen.
Figuring this out before looking can help you narrow down your choices or end up in a home that you end up not loving.
Stick to your budget
When you get preapproved for a loan, make sure to stick to that budget. When looking with your real estate agent, don’t tempt yourself by looking at homes that exceed it.
Instead, stay in the range you can afford and even consider looking at a lower range. Sometimes those homes just need a little TLC to make your dream home.
Work with a Real Estate Agent
This hopefully seems like a no-brainer but a buyer’s agent can make a big difference in how smoothly your home-buying process can go.
They help with finding homes that fit your budget and your wish list, they help with making a strong offer, they submit the offer letter, can negotiate with the seller, and can attend the closing to make sure everything is in order.
Make an offer only when ready
When you make an offer on a home, you will put down an earnest money deposit, otherwise known as a good faith deposit. This is often around 1-3% of the price of the home and acts as a deposit on the property. This deposit allows the seller to know you are serious about purchasing their property.
If you are not fully committed to buying the property, you could lose this deposit if you back out for a reason not listed on the offer letter.
Don’t skip an inspection
An inspection is different from an appraisal. While an appraisal gives you a rough estimate of the value of the home based on the homes of that quality in the area, an inspection gives you a detailed list of specific problems with the home.
These issues can then be used in the negotiation with the seller on either the purchase price or with them covering the cost of some of these issues.
Save copies of paperwork
While we all have a backup on the cloud or through emails, it is safest to keep a paper copy of all the important documents, including the deed, closing disclosure, etc. Keep these locked in a fireproof file cabinet for safekeeping.
We hope this checklist can help you on your journey to purchasing your first home. While the idea of making this first big step can be exciting, our agents at Al Williams Properties are here to help make sure it is easy as well.
Between our knowledge of the area, our expertise in home buying, and our willingness to walk with you every step of the way, you will be in your perfect home in no time. Give us a call today so we can begin checking off these steps today!