Everything you should know as a first-time homebuyer (plus, a bonus tip).
For most of us, homeownership is #GOALS. But, buying a home as a first-timer can be daunting. There are so many things that go into making such a huge life decision that it’s no wonder this life milestone is anxiety-inducing. So, since nobody wants to make an expensive mistake, we thought we’d save you some hassle and break down a typical first-time homebuyers course into 9 straightforward steps. You’re welcome.
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- Step 1: Determine how much you can afford
- Step 2: Get pre-approved
- Step 3: Find the right agent
- Step 4: Make an offer
- Step 5: Home inspection
- Step 6: Home appraisal
- Step 7: Negotiate repairs
- Step 8: Final walkthrough
- Step 9: Close on your new home!
- Bonus Tip: Cover your risk with life insurance
Step 1: Determine how much you can afford
- You will need enough money for your downpayment, closing costs + monthly mortgage (including taxes & insurance)
- Your income and savings determine how much you can take out as a mortgage.
- Pro tip: As a first-time home buyer, you can sometimes qualify to put down less than 20% if you declare the home as your primary residence.
- Pro tip: Some states offer credits or grants to first-time home buyers.
Step 2: Get pre-approved
- This means a bank or a lender agrees to lend you the money for your home.
- Pro tip: You can negotiate your interest rate with your bank. Sometimes smaller lenders offer better rates. According to The mortgage report, Buyers save $1,500 over the life of the loan by getting just one extra quote and $3,000 for five quotes on average.
Step 3: Find the right agent
- You want to find an agent with specific experience in the type of home you are looking to buy.
- Request references for all agents
- Talk to 3 agents before buying, review your contract for the commission percent.
- Pro tip: You can negotiate the commission percent the agent gets in the deal.
Step 4: Make an offer
- Ask your real estate agent for comparable listings to know what a reasonable offer will be.
- Pro tip: If you need to negotiate, remember to make your initial offer less than your final.
- Pro tip: You can negotiate repairs and contingencies as part of the deal.
Step 5: Home inspection
- This is a review of the condition of the home. Inspections take a few hours, and the buyer should be present.
- This inspection is paid for by the buyer.
- Don’t be surprised if there are a lot of defects in the inspection.
- Pro tip: You can negotiate the price still at this stage & still back out of the deal.
Step 6: Home appraisal
- Lenders need this to know how much money they are lending compared to how much the home is worth and compare it with your debt-to-income ratio.
- Pro tip: Include appraisal contingencies in the offer letter. If you include contingencies, you can get out of the contract if the home is appraised for way below the asking price.
- Pro tip: Keep in mind while appraisals don’t determine your taxes, assessments do. If you plan to make considerable upgrades to the property, your taxes may increase.
Step 7: Negotiate repairs
- Based on the inspection and appraisal, ask the seller to negotiate the home.
- Pro tip: you have two options here. The seller can be asked to fix the issues before you buy the home, or you can subtract the cost to fix the issues from the purchase price and do it yourself.
- Pro tip: Keep in mind if these fixes will delay your move-in date, think carefully about whether or not you want to be the one paying the mortgage during this time or put it onto the seller.
Step 8: Final walkthrough
- Go through the house again. Make sure everything is still there, and the seller hasn’t removed any items (like appliances) that are part of the deal.
Step 9: Close on your new home!
- You will get the closing disclosure. This has the details of your loan. Compare it to your loan estimate and make sure they are not too different.
- After this, you’ll sit down and complete all the paperwork needed to close the house!
Bonus Tip: Cover your risk with life insurance
Another thing they don’t teach you in home-buying class is how to cover your risk. Well, here’s a hint: home buyer life insurance. To put it simply, insurance can protect against risks. You’re taking out a big loan from a bank, which someone will have to pay off, so why not cover that risk? Life insurance for homebuyers might be a great way to make sure your debt is protected.
If you are looking to buy a home with a partner, you can also look into first-to-die joint life insurance. This shared life insurance is excellent for homeowners who have jointly signed a mortgage because it covers you both in one policy. So, if either of you passes away, the other one might be able to put the death benefit towards your mortgage. And unlike single-life policies, you usually only pay one premium for joint policies that cover both of you.