There are tons of things you’ll learn as you go through the process of buying your first house.
But the more you know in advance, the easier time you’ll have, and the more enjoyable your experience will be. Here are some tips for first-time buyers to keep in mind.
Tip One: Don't Skip the Agent
Contrary to what some believe, buyers don’t pay a fortune to their buyer’s agent. In fact, buyers don’t usually pay any of the real estate agent fees. The seller’s agent does.
The seller, as part of his or her closing costs, pays their agent a set commission rate, usually around six percent of the sales price of the house. In turn, the seller’s agent gives a portion of that commission to the buyer’s agent.
Your agent will help you along with every phase, from finding the right lender to shopping houses and from negotiating offers to signing the closing documents. Don’t skip on the agent. There are too many benefits and no cost to you.
Tip Two: Don't Jump the Gun
It’s normal for people to get excited and start looking at houses online. Here’s the problem with that. By the time you’ve found your agent and gotten approved for your home mortgage loan, assuming you haven’t already, the house will be sold before you’re ready to buy. It can be heartbreaking.
Try to avoid sneaking-a-peek at what’s currently for sale until after you’ve found your agent and been approved for your home mortgage loan.
Tip Three: Get Your Money, Numbers, and Paperwork in Order
If your credit score is too low or your debt-to-income ratio is too high, you won’t qualify to buy a house. Your credit score should be above 620, and your DTI should be lower than 36 percent.
Save enough money for your down payment, earnest money deposit, and closing costs, as well as setting aside your moving expenses and emergency fund. You don’t want to find yourself house poor or have buyer’s remorse.
You’ll be asked for a mountain of paperwork that includes pay stubs, bank statements, credit card statements, loan documents, tax forms, and any other proof of income, assets, or debts that you have. Get this paperwork together in advance to save time in the process.
Tip Four: Don't Change Jobs, Close Accounts, or Finance Anything
While you definitely want to pay down any credit card accounts or lines of credit, you don’t want to close the accounts completely. Having your accounts open and with a zero balance helps your credit score and your debt-to-income ratio.
Although it’s tempting to finance furniture for your new house or buy a car, it’s critical that you do not make any big purchases until after you’ve closed on the house. Any significant changes in your credit score or DTI could nullify your contract with the lender.
Tip Five: Shop Lenders
Lenders are the ones responsible for estimating your closing costs, which amount to anywhere between three and eight percent of the sales price. When you apply, they provide you with a list of estimated costs. Then, right before closing, they give you a list of actual costs.
Compare the estimated closing costs between lenders. You don’t necessarily have to choose the cheapest lender because they might not have the best terms. However, armed with ample information, you may be in a position to negotiate lower closing costs with the lender.
You may also be able to reduce closing costs by hiring your own service providers rather than the ones that work for the bank.
Tip Six: Buyers' Market vs. Sellers' Market
A buyer’s market is what happens in real estate when there are a lot of people selling homes and only a few people buying.
Sellers become more willing to negotiate lower prices, closing costs, or other contingencies. Buyers can be pickier. There’s a lot of inventory to choose from.
On the flip side, a seller’s market means there’s not a lot of houses for sale and so many house-hunters that there’s not enough inventory to go around. This creates fierce competition amongst buyers, who then drive up the home values.
Houses in a seller’s market are more expensive than houses in a buyer’s market, even though nothing about the house or its location has changed.
Market values are based on supply and demand in addition to location, size, and condition.
Tip 7: Have Realistic Expectations
Once you’re pre-approved, you’ll know how much you have to spend. But first-time buyers are often taken aback by how far (or little!) their home buying budget can stretch.
You might be dreaming about fine finishes in an urban or suburban setting with easy access to amenities like public transportation, restaurants, shops, parks, and excellent schools. You may not be able to have them all.
Be prepared to compromise on location or features. Ask your agent what your budget will realistically buy.
Tip 8: Don't Emotionally Attach
No matter what phase you are in the home buying journey – whether looking online as your first step or during the closing process, the deal could fall through.
The seller might not accept your offer. You could end up losing a bidding war. You might not have financing secured. The house might not appraise.
Problems could turn up during the inspection. That’s not to cast a negative shadow on the experience, but it does suggest that you maintain a level head and not emotionally attach to any one property until you’ve signed on the line on closing day.
When you’re buying a house, don’t go it alone. Hire the right agent. The most important takeaway is that you don’t fall in love with a house; losing it could feel devastating.
Work with your agent to find the right house in the right location at the right price after you’ve properly prepared for your purchase.
Ask your agent for more tips, tricks, and things to know about buying your first house.