Most people dream of buying their first home because of the financial and emotional stability it can offer when it comes to settling down. Most experts recommend investing in real estate because the price of the property can continue to increase over time, and you can build equity rather than lose money by renting. When you’re looking to buy your first home but don’t know where to start, there are a few important tips to follow and steps to take to avoid mistakes and have a seamless process.
Know the Market
Knowing the market is crucial to ensure you can save money and get a better deal on a property that you’re looking to buy. Start tracking the market at least a year in adhavce and becoming familiar with the current state it’s in, which will determine how many options are available as you look around for a home to purchase. You may want to wait to until the market slows down if you’re looking to invest in a foreclosure or get a better deal instead of buying a home when the market is inflated.
When the market is hot, you can expect to have a bit of competition because there will be a lot more buyers who are also looking to invest in real estate. You may need to bid higher on a home you’re interested in to have a better chance of beating out other bidders.
Build Good Credit
If you’re planning on investing in real estate, one of the most important steps you’ll need to take before applying for a home loan is building your credit. Your credit score is one of the main factors that lenders review when taking a look at your application because it reflects your relationship with money, and if you pay your bills on time. Those who have lower credit scores can obtain a more competitive interest rate, which can allow you to save more money during the life of the loan.
You can boost your credit score by paying off more than the required amount each month and paying off some of your credit cards. It’s also important to review your credit report to determine if there are any errors present, which you can dispute with a credit bureau and have it removed. You’ll also want to lower your credit utilization to below 20 percent. Avoid closing any credit cards or accounts, which can affect the length of time you’ve been borrowing money and hurt your credit score.
Due to a possible recession, lenders are going to be more strict with who they loan money to when reviewing applications. Having a higher credit score will make you appear to be more reputable as a borrower and meet the stricter guidelines to ensure you obtain the necessary funds for your new home.
Save 20 Percent Down Vs PMI
Many people rush the process of buying a home and save less than 20 percent to put down on the new property. Although there are some loans available that allow you to put less than 20 percent down, it means you’ll end up paying for private mortgage insurance each month. For homes worth $300,000, private mortgage insurance is an average of $150 each month, which needs to be taken into consideration when determining how much house you can afford.
Saving 20 percent will also lower how much your monthly mortgage payment is and can allow you to afford a home that costs more than if you only saved 10 percent. Although it may take a few more months or years to save the extra money, it can pay off in the long run.
Hire a Good Realtor
Many buyers make the mistake of trying to buy a home without the help of a realtor in an attempt to save money when purchasing the property. Fortunately, the seller is the one to cover the cost of the services of the realtor, which means you should hire the professional anyway since it won’t come out of your own pocket.
Hiring a professional is essential because the expert may be aware of certain properties that are listed that aren’t advertised, which can allow you to have the advantage over other buyers.
An additional benefit of realtors is you can communicate what you’re looking for in your first home, which can allow them to narrow down the best options based on your wants or needs. They have more resources when it comes to finding the best properties in the specific area that you’re looking to buy. They’ll even give you information on the specifics of the area and if you’ll have airplanes flying over your home or if the school district is good.
Realtors are also known to be expert negotiations and can work as the middle man to avoid tension with the seller. They can help you to get a better deal on the home, which can allow you to save thousands of dollars, which can make it worth using their services. They can also offer their insight and advice if your offer is too low so you can avoid turning off the seller or offending them.
Perform an Inspection
Although performing an inspection isn’t required, it can be a mistake to forego it because of the significant investment you’re making into the new home. There may be hidden issues present, whether there’s mold in the basement or the roof needs major repairs. If you understand what repairs need to be made before the closing date, it can allow you to have more negotiating power with the seller and deduct the cost of the repairs from your offer.
Hire a professional to perform the inspection before the closing date to ensure you have enough time to withdraw your offer if the defects are a dealbreaker. The inspection can also allow you to have confidence in buying the property if only a few issues are uncovered.
Set a Realistic Budget
Knowing your budget in advance is one of the most important parts of the process of investing in real estate. If you don’t know what you can afford to spend, you can fall in love with a house that is out of your price range and makes you house poor. You’ll need to determine your budget to ensure you can only visit properties you can afford and avoid wasting your time or your realtor’s time as you look around.
One of the best ways to determine what you can afford to spend is to calculate your household income, which includes various revenue streams from alimony or even investment profits. The house you purchase should be less than 28 percent of your gross income. There are additional expenses you’ll also need to take into account, which include homeowner’s insurance, property taxes, HOA fees, the cost of repairs, landscaping, and utilities.
Your debt-to-income ratio should also be below 36 percent of your gross income to ensure you can afford to pay your mortgage each month and keep up with the costs associated with homeownership.
Getting a better understanding of the process of buying a home can allow you to become more prepared and avoid any interruptions or issues that can occur to first-time home buyers. You can get all of your documents and finances in order ahead of time and become more qualified as a buyer to ensure you’re ready to invest in your first property and avoid becoming house poor.