For many Americans, buying a house is the fulfilment of a lifelong dream, and doing it for the first time can be confusing, overwhelming, and challenging.
Successful home buying is all about setting goals from start to finish. After all, there are so many decisions to be made and requirements to be completed, and no one wants to jeopardize the closing and funding of their first house by making an expensive mistake.
Fortunately, you’re not alone, and buying your first house doesn’t have to be a pain in the rear.
What do I need to know as a first-time homebuyer?
There are many features you should pay close attention to before you buy what you think might be your dream house.
Location, for example, is often overlooked but as important as inspecting the foundation. You want to make sure your new neighbourhood allows easy access to the places you visit the most, main roads, parks, and schools if you have kids.
The age and style of the house can also be a deal-breaker for some. You may come across properties from several decades, and even though old houses have a certain appeal, they often require more upgrades and repairs than newer ones.
We also know there are certain money-related concerns you should focus on before thinking about the size of the kitchen or the colour of the front door. Here are four questions you should ask yourself long before even considering making an offer for a house:
How much money should I save before buying a house?
You may be surprised to find out the down payment is only one of many financial hurdles you’ll need to clear. You also need to consider:
- Closing costs associated with the mortgage
- Property taxes
- Government Fees
- Appraisal and Home Inspection Costs
- Real Estate Agent Commission
- Title Fees
- HOA Fees
Also, many mortgage lenders will require you to have cash savings in addition to the down payment amount.
Considering that, saving 20-25% of the house’s sale price in cash can cover all of the different buying expenses.
How much should I put down?
We’ve all heard about the 20% rule, and even though a large down payment can help you purchase a better house, you’ll be happy to find out that’s just a myth and there are many loan programs that allow as little as 3% and even 0%.
According to the National Association of Realtors (NAR) – based on the home’s value – the median down payment for all American buyers in 2021 was 12%.
How much down payment you need for a house often depends on the type of mortgage you get. A conventional mortgage starts at 3% to 5% down. But how much you should put down depends on what’s in your wallet.
Larger down payments shrink your monthly mortgage payments, so if you have plenty of money in the bank but a low monthly income, making a big down payment is only smart.
The reverse can be true.
If you have a good household income but very little saved up, it can be beneficial to stick to a small down payment.
Should I skip the home inspection?
We know the $200-$500 home inspection bill may come as a surprise, and it’s only natural you are tempted to skip it to save some money, but there are plenty of good valid reasons why that’s a terrible idea.
The most important one is safety. Home inspectors have the legal and moral duty to inform all parties involved about any imminent hazards they discover, especially if such hazards may result in physical injuries.
Detecting the level of moisture intrusion on time can mean the difference between a smooth home sale and a lawsuit against your homes’ former owners.
Another reason why you shouldn’t skip the home inspection is that it can be a powerful negotiation tool if any fault is found. It also helps you identify how much additional money you’re willing to put into that house should you decide to purchase it.
Insurance is also something you should keep in mind. Some companies will not insure a house unless certain conditions are met or without some certifications.
Can I handle the costs of insurance, property taxes, and maintenance?
In addition to paying your monthly principal and interest in your mortgage, you’ll come across additional monthly fees you must be certain you can cover.
The good news is that most lenders require you to set up an escrow account, which means your monthly mortgage payment will also include an escrow payment to cover your property taxes and insurance premiums.
The bad news is that your property taxes are not determined by your bank but by the township, city, or county in which the home is located, so the amount you pay may vary depending on its market value. Insurance works the same way.
To avoid making a purchase you’ll regret, make sure to include property taxes, insurance, and maintenance in your budget.
Conclusion
Buying your first house is a major personal milestone, and it can be an exciting and positive experience if enough effort is put into it. By giving these four questions careful consideration before making an offer, you’ll be sure to actually enjoy the ride and find your dream home, even in a hot real estate market.
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