There is a lot to consider before you buy your first home. Lets take a look at a few easy steps to follow that will make sure you are ready for home ownership…
1. Pay off any debt and start an emergency fund
Owning a home is expensive. Before buying a home, make sure you are in charge of your finances. When you own a home, you’re responsible for all the maintenance and upkeep costs, which can add up quickly. Before you even think about buying your first home, make sure you’re debt-free and have an emergency fund of three to six months of expenses in place. According to a 2019 Federal Reserve Study, almost 40% of American adults wouldn’t be able to cover a $400 emergency with cash, savings, or a credit card charge that they could quickly pay off. Having an emergency fund, even though it can take some time to build up, will save you big time when any home-related expenses come your way.
2. Know how much you can afford to spend on your new home
You must know what price range you can afford before you start looking for a home. Most first time home buyers start their search online. Go ahead and browse to see what is out there, but before you start walking through the homes, you should get pre-qualified by a lender. Pre-qualification starts by sending the lender some of your basic information, such as your name, your credit score, your occupation and income, etc. With the information you give the lender, they can tell for what amount you may qualify. You must provide the lender with proof of your information. Items to have ready to give to the lender would be pay check stubs, bank statements, tax returns, etc. Once you are pre-approved, all they will need is a property to work with to complete the approval process. If too much time has passed, you may have to give the lender updated documents to show that nothing has changed.
3. Consider how much of a down payment you should make
Many first time home buyers believe they have to put 20 percent down on a home, as that is the perceived norm, but that is not necessarily true. In fact, the average down payment for first time home buyers is only 6 percent. On a $250,000 home purchase, that would be just $15,000. And there are even loan programs that let you buy with even less than 6 percent down, such as FHA loans, VA loans, USDA loans, Conventional 97 loans, and more. Some of these have special requirements, but most of these programs are available to the general public.
Down payments are flexible. Yours should depend on your monthly income, what you currently have saved, how expensive the home is, and what your overall home buying goals are.
4. Consider getting a home inspection, and asking the seller for a home warranty
A home inspection is a thorough assessment of a home conducted by a certified professional home inspector. Home inspections usually occur before a home is sold to reveal any issues that might become problems for the first-time home buyer.
Home inspectors evaluate the systems and components inside and outside the home from foundation to roof top. Home inspectors further conduct a visual inspection of all accessible areas of the home and report on functionality, wear and tear, safety and maintenance. Typically, a home inspection costs between $300-$400.
A home warranty covers the repair or replacement of common home systems and appliances that fail due to normal wear and tear. Depending on the home warranty plan you choose, the plan could cover A/C and heater units, plumbing and electrical systems, and many of your home appliances. When making an offer to purchase the home you have chosen, ask the seller to pay for a home warranty. The average home warranty costs around $400 and will cover you for a year. After that, you can choose to continue to pay for the home warranty, or let it expire.
5. Prepare for closing, and save for closing costs
Once a seller accepts your offer, the closing process will begin. The average closing process takes 43 days, which gives you plenty of time to tackle closing items. As you prepare for closing, make sure you read every document and ask your real estate agent to explain anything you don’t understand. Along with your down payment, you’ll also need to pay for closing costs. On average, closing costs are about 3–4% of the purchase price of your home. Your lender will give you a specific number so you know exactly what to bring on closing day. These fees pay for important steps in the home-buying process, including appraisal, home inspection, credit report, attorney, and homeowners insurance.