So you’re ready to buy your first home—it’s exciting, right? A lot of folks love to window shop on home listing sites or visit open houses for fun (not to mention all the House Hunters TV shows)—and here you are, ready to jump into the real deal of buying a home!
Along with all the fun stuff and late-night listing searches, a first home purchase comes with a laundry list of to-do items, dealing with finances, dreams, and everything in between. Plus, the home buying process can bring about surprises. The most important thing to keep in mind when buying your first home is that this is a once-in-a-lifetime experience that you should enjoy (so long as you approach it with care).
There are many questions you might have as a first time home buyer, like "what are some payment assistance programs?", “what loan type do I qualify for?", or "how long is the home buying process?" Don't worry, we're here to help!
We’ve gathered some first time home buyer tips and tricks below to help you get ready, including using our personalized local agent finder!
9 Essential Tips for First Time Home Buyers
Knowledge is powerful whenever you’re trying something new for the first time-- and since most people don’t buy a house every day, even experienced home buyers can benefit from brushing up on best practices. Below are nine critical tips to help you prepare for a successful (and peaceful) first home purchase journey.
#1: Start Saving Early
If you’re not anticipating a windfall inheritance to come your way, then the faster you can begin setting aside dedicated savings, the sooner you can buy your friends pizza after they help you move in. You’ll need enough money saved to cover:
- A house down payment, as low as 3%, but usually 10% or 20% of the house price
- Closing costs of 2% to 7% of the loan amount for a buyer (average 3%)
- Moving costs and incidentals
#2: Master Mortgage Terminology
The first thing to know about mortgages is that they aren’t one size fits all. Just as you’ll look for the house that fits you best, you also need to comparison-shop for a mortgage that works best for you. Basics to understand about mortgages include:
- Mortgage types – There are several options you may qualify for, particularly for a first home. Do your research to determine if your best bet is a conventional loan, FHA loan, USDA loan, or VA loan.
- Average mortgage rates – A single-digit change in a mortgage rate can mean the difference of thousands of dollars over the life of your loan. Mortgage rates fluctuate based on many market factors that influence the average interest rate at the time—while you can’t affect this aspect of a loan rate, it’s important to be aware of the forecast.
In 2021, we’ve been seeing an average rate of around 3%. This is predicted to slowly increase to around 4% in 2022 (which historically will still count as quite a low number).
- Mortgage brokers – A lender is the specific entity that ends up fronting your money. Mortgage brokers are middlemen, similar to independent insurance brokers, who can review many different lending options and find the best deal for your situation. They are paid either via commission from the lender or a fee paid by the borrower (usually 1% to 2% of the loan amount).
- Get that preapproval – While prequalification is based on an informal assessment of how much you may be able to borrow, pre-approval documents how large of a loan a lender will grant after reviewing your income, assets, and credit score. You’ll want to have this in-hand to support making an offer on a house, as well as having it as a starting point for establishing your price range when you house shop. You might also be confused about the difference between mortgage pre approval vs pre qualification as they both sound similar.
- Avoid private mortgage insurance – With a traditional mortgage lender, you can avoid paying hundreds in private mortgage insurance (PMI, for short) by putting down 20% up front.
#3: Learn How to Qualify for a Home
Qualifying for your first home is a mix of your past, present, and future financial credibility. Lenders want a convincing degree of assurance that you’ll be able to meet your monthly mortgage payment.
In addition to proof of current employment, they’ll evaluate your:
- Income history, usually based on two years of employment or self-employment
- Current assets, to ensure you can cover the down payment and closing costs
- Credit score, looking for a minimum 620 for traditional lenders
- Debt-to-income ratio, with a goal of 36% max (28% max for the mortgage, according to Investopedia)
If you don’t fit neatly into all of these boxes, you may want to work with a mortgage broker. Brokers connect with many different lenders and are often best situated to connect the right mortgage lender to nontraditional borrowers. This could be you if:
- Your income is seasonal or varies month-to-month rather than consistent, steady paychecks
- A former partner left you with financial damage that doesn’t look good on paper
#4: Figure Out the Cost of Wants and Needs
This is a fun one for people who love lists! Putting your wants and needs down on paper will help you prioritize them and set the boundaries between must-have items and wouldn’t-it-be-awesome features. If you’re buying with a partner, tackle this list separately before you sit down to compare and negotiate on a combined priority list of what you either need or want in your first home.
It’ll also be a tremendous help as you connect with your real estate agent. No agent wants to waste time on pointless showings to people who claim they’ll “know it when they see it.”
#5: Choose Your Price Ceiling
Once your lender has pored through your finances and declared what amount you may borrow, it’s tempting to take that as your automatic price maximum. But will you still have a safety cushion for emergencies, or the funds to cover unanticipated house repairs? Let your budget be the guide for your house price ceiling rather than your lender, and stay at a loan amount you can comfortably live with.
#6: Assemble a Trusted Team
If you're wondering how to find a buyer's agent, there are a few options. You don’t just need to call the first name on a Google search. While you can solicit recommendations from family members and friends, it can be difficult to evaluate whether Aunt Suzie’s recommended agent knows the neighborhoods you want to buy in and has recent experience working with first time home buyers— especially when you don't have past experience to help you know what to look for in an agent. That’s why using a service like Dwellful that puts you in touch with pre-vetted agents who have deep expertise in your local area is a great option for first time buyers. You can interview them to see if it’s a good fit before committing to:
- A skilled, local real estate agent who specializes in representing buyers
- An experienced home inspector who’s familiar with city and county regulations
- A mortgage broker or comparison service that can find you the best lender
Keep in mind that your agent will likely have a network of home professionals they can recommend, such as local lenders, closing and title companies, inspectors, cleaners, movers, painters, and more. It’s always best to ask for recommendations from your agent to comparison shop that you’re getting the best rates and service.
#7: Know When to Negotiate
You’ve got multiple points of negotiation in a home buying journey. The most obvious is negotiating on price with a seller (yes, you can do that; this isn’t a department store with fixed sticker prices). But you can also negotiate:
- To balance home needs and wants with your buying partner or yourself
- With your agent to clarify what, when, and where they show you houses
- After a home inspection if it uncovered new information
Negotiation is a tricky thing when you’re a homebuyer in a seller’s market. If you show up in the boondocks and tour a mansion that’s been on the market for years since the small town’s one weird rich guy died, feel free to make a crazy low offer and see what happens.
But if houses in your target neighborhood are consistently selling at 10% over asking with multiple bids, then negotiation gives way to competition. This is a critical discussion to have with your agent and something to be aware of in setting your neighborhood viewing boundaries. If you know you’ll have to offer over asking, then viewing listings at your max loan amount isn’t the best way to start.
#8: Tap Into Your Network
How many people do you know who own their homes? Do some personal surveying and ask them:
- What have been the most important features of their house?
- What do they wish they’d known before they bought this house?
- What would they do differently if they had to move and shop for a house today?
#9: Avoid the First-Time Home Buyer Traps
Loan pre-approval can be a heady thing, as if you’re walking around with a huge bankroll in your pocket. But this is a huge investment that will affect your day-to-day life as well as your finances for years to come. Some traps to think through carefully include:
- Buying the best house on the block – Even if you currently plan to never move once you’re in, you still want to make a wise investment decision. Neighboring home values are going to affect yours, and buying a castle on a street full of shacks means you’ll be less likely to benefit from home appreciation, especially appreciation from upgrades to your property.
- Being swayed by cosmetic elements – Dated or outright awful choices in paint, wallpaper, or even floor covering can provide a visual punch, but you need to understand the cost range of different types of upgrades. Try to see the bones of the house, and note what changes you’d need to make. House A with shag carpeting and chartreuse walls may just beat out a gorgeously appointed House B with a too-small kitchen and half a bath less than you need.
- Buying the cookies – If you’re familiar with the concept of home staging (including the trick of baking chocolate chip cookies right before an open house), you know that agents present a house in its best light. You’ll live in your new home through flu season and piles of dirty laundry, times of stress, mess, and weird smells. Make sure your buying decisions are backed up by factual analysis against your needs and wants list.
The Key To Your First Home Purchase? Dwellful
From understanding how your monthly payment is determined to researching the possible home loan program options, there are many tips and tricks to making your first home purchase. One of the most important parts of a smooth first home purchase is connecting with a buying agent you can rely on. In addition to expertise and guidance, you’re looking for someone you feel comfortable with on this journey. The right real estate agent is ready to understand your needs, your goals, and your communication style, and work with you to find your perfect fit.
Dwellful is an entirely free-to-buyers service that matches you with a trusted, local real estate agent in under two minutes. And we take it a step beyond just “free” by cutting you a check after you close on your home! Agents pay us for making qualified referrals, and we rebate part of that money directly to you based on the sale price of your home. This agent finder service that pairs you with a trusted local real estate agent provides the best service for you as a seller or a buyer because it uses data-driven technology to make a great match, and if you're ever unhappy, we offer an agent satisfaction guarantee so you can switch to a new agent.
Get started on your first home purchase today by requesting a no-obligation match to connect with an experienced local realtor, and we’ll help you take one step closer toward your dream home.