Buying a home can be a daunting task for a first-time homebuyer. After all, there are so many steps, tasks, and requirements, and you may be worried about making an expensive mistake. But first-time buyers enjoy some special advantages designed to encourage new entrants into the real estate market.
To demystify the process so you can get the most out of your purchase, here’s a rundown of what you should consider before you buy and what you can expect from the buying process itself.
Some Questions to Consider Before Buying 🤔
Your first step is to determine what your long-term goals are and how homeownership fits into those goals. Maybe you’re just looking to turn all those “lost” rent payments into mortgage payments that give you something tangible: equity. Or maybe you see homeownership as a sign of independence and enjoy the idea of ​​being your own boss. Also, buying a home can be a good investment. Here are some questions to consider:
1. How is my financial health?
Buying a home could be the biggest financial decision you’ll ever make, so before you take any big step, you need to make sure your finances are in order.
Using a home affordability calculator (we have one at AiLend) can help you figure out your budget by taking into account your income, debt, location, and down payment amount (more on down payments in a moment). You’ll be able to see how your monthly mortgage payments might add up and what your finances might look like as a homeowner.
This can be important to keep your ambitions grounded. You may be able to qualify for a sizable mortgage, but that doesn’t mean you actually want to commit that much of your budget to housing.
2. What’s my down payment plan?
Once you’ve decided what you can afford, you can figure out how much you want to save for a down payment. While a 20% down payment used to be the norm, many homeowners are opting to put down less. A smaller down payment requires less money, but it means you’ll have to pay mortgage insurance and more money later.
3. What’s on my wish list?
There are going to be some fun steps! And creating a list of must-haves and cool things for your home is definitely one of them. Whether you’re looking for a starter home or somewhere you can envision living for years to come, there are many small details to consider.
4. How do I get approved for a mortgage?
Before you start shopping, it’s important to have an idea of ​​how much a lender will lend you to buy your first home. You may think you can afford a home of the desired value, but you should base your decision on factors such as how much other debt you have, your monthly income, and how long you’ve been in your current job. Additionally, many real estate agents won’t spend time with clients who haven’t clarified how much they can afford to spend.
5. What house can I afford?
Sometimes a bank will give you a loan for more than you want to pay. Just because a bank says it will give you a certain amount doesn’t mean you should borrow that much. Many first-time buyers make this mistake and end up “house poor” because they make their monthly mortgage payment to cover other costs, like clothing, utilities, vacations, entertainment, or even food.
To decide how much to borrow, you need to look at the total cost of the house, not just the monthly payment. That’s where we at AiLend can help: our job is to refer loans and make the process of getting a loan as easy as possible without the customer having to go to a bank branch.
Consider how high the property taxes are in your chosen neighborhood, how much homeowners insurance will cost, how much it will cost to maintain or improve the home, and what your closing costs will be. Buying a home on a smaller budget than approved will not only make your financial life more flexible, but it can also help you in today’s hot housing market.
6. Who will guide me through the buying process?
A real estate agent will help you find homes that meet your needs and are in your price range. Once you’ve chosen a home to buy, these professionals can help negotiate the entire buying process, including making an offer, getting a loan, and completing paperwork. The expertise of a good real estate agent can protect you from any pitfalls you may encounter along the way. Most agents receive a commission, paid out of the seller's proceeds.
7. Why should I buy homeowners insurance?
It may seem a little strange to get an insurance policy for a home you don't own yet, but most lenders make homeowners insurance a condition of giving you a mortgage. You'll want enough coverage to completely replace the home (which may not be the same as your purchase price or appraised value), and the policy usually needs to be in effect on the closing date.