For first-time homebuyers, the whole homebuying process may look a bit daunting. You’re going into what could be the biggest purchase of your life with no experience to fall back on. The good news is a little preparation can go a long way and help you approach this major decision with confidence.
Many things have changed in recent decades about the way Americans buy and sell homes, but one adage still matters, a lot: location, location, location.
While you may be happy living in any of several neighborhoods in your city, you won’t be happy if you choose the wrong location. And that’s where your research should start: deciding exactly where you want to live.
Talk to friends and co-workers, drive around town, visit restaurants and stores and talk to neighbors in areas you’d consider calling home. Go to open houses so you can view some houses. Look at homes on the Internet, evaluating style, size, price and how long they stay on the market.
You can find a real estate agent while you’re still working on this process. However, your choice of agent also depends on where you want to live, because a neighborhood expert often can find you the best house at the best price. “You want people who have worked and have experience directly in the areas you’re looking in,” says Mia Simon, a Redfin agent in Palo Alto, California.
If you’re a buyer, there is no reason not to use a real estate agent. It costs you nothing, and the agent’s job goes far beyond finding the house. In fact, it’s after you’ve found the house that you’ll most need the agent, both to structure and present the offer and then to troubleshoot issues that arise between contract and closing.
A good agent can also help you craft an offer that will be accepted. “A lot of them still think they can negotiate and do low-ball offers all around,” says Kristi Ferrara, a broker with Better Homes & Gardens Kansas City Homes in Kansas City, Missouri. The market is fairly balanced between buyers and sellers in Kansas City, and homes are selling for 98 percent of asking price. In some cities, such as San Francisco, it’s actually a seller’s market, and homes are selling above asking price, Simon says.
If you’re on a first-time buyer’s budget, you also have to be realistic about what you can afford. Know that you won’t find your dream house. “If you find 85 percent of what you’re looking for, you’re doing pretty good,” Ferrara says. “If they’re prepared for that when they hit the street, it makes it easier.”
Here are 12 tips for buying your first house:
Make sure you’re ready to buy, both emotionally and financially. If you expect to relocate in a few years, this may not be the right time for you to buy. If you don’t have cash for a down payment, closing costs and other expenses, you may be better off waiting. Look at your life, your career, your finances and your future expectations, and determine whether buying a house is the right move at this time.
Find the right team. The difference between deals that close and deals that don’t are the professionals involved. You want to make sure you find a real estate agent who will move quickly when a new listing goes on the market, as well as an agent who will advise you honestly on preparing your offer. You also want a mortgage professional lined up before you start looking. “The lender is the most important person to closing on time,” Simon says.
Get your finances in order first. Some real estate agents won’t even show homes to prospective clients who don’t have a mortgage preapproval. You definitely should meet with a mortgage broker or banker (better yet, several) at the start of the process to find out how much house you can afford and how much cash you’ll need to close. Do all the math. Just because a bank says you can borrow $200,000 doesn’t mean you should. If you have credit issues, realize that this part of the process could take several months.
Calculate each and every cost. The purchase price and the mortgage payment are just the beginning. Don’t forget homeowner or condo fees, homeowners insurance and real estate taxes. Plus, you’ll need to budget for utilities, repairs and maintenance.
Don’t spend all your cash. Avoid emptying your bank account for your down payment and closing costs. There will always be unexpected repairs. Plus, it costs money to move, change locks, put down utility deposits and buy things you never needed before, like a lawn mower.
When you look at houses, focus on the right things. Don’t be distracted by the owner’s odd décor, paint colors, dirty carpet or anything that is easy to change. Granite countertops and stainless steel appliances are easy to add later. You can’t easily add another bedroom, a better location or a more functional floor plan.
If you're buying in a condo or homeowners association, know the rules. How your association is run can make a big difference in how much you enjoy life in a development. You’ll want to know about all rules and restrictions, from pet ownership to who can use the pool. Condo buyers also want to investigate the association’s finances because a poorly run association can mean big assessments later.
Visit your favorite neighborhoods at different times. Most neighborhoods are quiet in the middle of the day. As Glen Craig writes at the personal finance blog Free From Broke: “You need to see what the area is like on a Saturday night. Are there kids and such all out driving with music blasting? What’s it like in rush hour in the morning or in the evening?”
Talk to the neighbors. Ask about the neighborhood and about the houses you’re considering. The neighbors will know if there are foundation problems. They’ll also know about barking dogs, petty crime and the size of utility bills.
Consider which contingencies you’re willing to waive. In the ideal scenario, a purchase offer is contingent on a satisfactory home inspection, approval of your mortgage and an appraisal that equals the purchase price. In most parts of the country, a buyer is smart to keep all those contingencies in the contract. But in a competitive market, you may be competing against buyers who have agreed to waive contingencies. “You never want to [agree to waive them] unless you’re sure you’re 99 percent safe to do it,” Simon says.
Be ready to move quickly once you find the home you want. Good homes that are well-priced nearly always sell quickly. It’s OK to take some time to think before you make an offer, but you might not want to wait a few weeks. Your agent can provide invaluable advice here.
Know what’s important to you. No house will be perfect, so where are you willing to compromise? If you want a specific school district, are you willing to accept a smaller house? If you want to be near the water, could you be happy with a condo? Are you willing to accept a longer commute to get a larger house?