Buying a home can be challenging for a first-timer. After all, there are so many steps, tasks, and requirements, and you may be anxious about making an expensive mistake. But first-time homebuyers enjoy some special advantages created to encourage new entrants into the real estate market.
To demystify the process, so you get the most out of your purchase, here is a rundown of what you need to consider before you buy and what you can expect from the buying process itself.
Some questions to consider before you buy 🤔
Your first step is to determine what your long-term goals are and how home ownership fits in with those goals. Perhaps you’re simply looking to transform all those “wasted” 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 landlord. Also, buying a home can be a good investment. Here are six questions to consider:
1. How’s your financial health?
Buying a house may be the biggest financial decision you'll ever make, so before you take the plunge you want to be sure your finances are solid.
Using a home affordability calculator (we have one in AiLend) can help you determine your budget by taking into account your income, debts, 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 how your finances could look like a homeowner's.
This can be important for keeping your ambitions down to earth. You might be able to qualify for a sizable mortgage, but that doesn't mean you want to commit that much of your budget to housing.
2. What's my plan for the down payment?
When you've determined what you can afford, you can figure out how much you want to save for a down payment. Though 20% down payments used to be the norm, many homeowners opt to put down less. A smaller down payment requires less money upfront but means you'll have to pay mortgage insurance and more money afterward.
3. What is there on my wishlist?
There'd be some fun steps! And coming up with a list of must-haves and nice-to-haves for your house is one of them. Whether you’re looking for a starter home or somewhere you can imagine living for years to come, there are lots of little details.
4. How can I get approved for a mortgage?
Before you start buying, it is important to have an idea of what a lender should do to buy the first home. You may think you can afford a home of a required value, but you have to rely on what such as how much other debt you have, your monthly income, and how much time you have in your current job. Moreover, many real estate agents will not spend time with what they can not explain that they can afford to spend.
5. How much home can you afford?
Sometimes a bank will give you a loan for more house than you want to pay for. Just because a bank says it will lend you an amount doesn’t mean that you should borrow that much. Many first-time homebuyers make this mistake and end up “house-poor” with little left after they make their monthly mortgage payment to cover other costs, such as clothing, utilities, vacations, entertainment, or even food.
In deciding how big a loan to take, you’ll want to look at the house’s total cost, not just the monthly payment. We at AiLend can also help with this: our task is to refer and make the lending process as easy as possible so that the client needs to go to the bank branch.
Consider how high the property taxes are in your chosen neighborhood, how much homeowners insurance will cost, how much you anticipate spending to maintain or improve the house, and how much your closing costs will be. House shopping with a smaller budget than you are approved for will not only make your financial life more flexible but can also help you in today's hot housing market.
6. Who will guide you through the homebuying process?
A real estate agent will help you locate homes that meet your needs and are in your price range: we at AiLend for this have a special calculator to help with this. Once you’ve chosen a home to buy, these professionals can assist you in negotiating the entire purchase process, including making an offer, getting a loan, and completing paperwork. A good real estate agent’s expertise can protect you from any pitfalls that you might encounter during the process. Most agents receive a commission, paid from the seller’s proceeds.
7. Why do I need to purchase homeowners insurance?
It might feel a little strange to take out an insurance policy on a home you don't own yet, but most lenders make securing homeowners insurance a condition of giving you a mortgage. You'll want enough coverage to fully replace the home (which might not be the same as your purchase price or the appraised value), and typically the policy should become effective on your closing date.