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Buying your first home can be a scary process, especially if you dive in without doing your research. There is a lot of money on the table, and getting a loan for a home is a long-term commitment. Needless to say, this is not a decision you need to rush into.
Rather than buying a home without any preparation, it's best to understand how the process works and try to act like you've been through it before. This way, you will avoid common mistakes with home buying while finding a house you can feel proud to own. Here is a buying guide for first time home owners to help you ensure that you're getting a good deal.
Are You Financially Ready to Buy a Home?
A lot of people question whether or not they want to buy a home because of the costs involved with it. We recently did a study that compared the true cost of buying versus renting a home, and we discovered that buying is always more affordable in the end. Just because it's more affordable doesn't mean it's right for you though – at least not right now. Make sure you have enough money saved to put at least 10%-20% down on the home (depending on your credit worthiness), plus an additional $10,000 or more for repairs and inspections. This seems like a lot, but it is better to have that as a backup then get into a home you cannot use right away.
On top of saving money, you also have to think about your income stability. Have you been on the job a while, or did you just start? You might be making a lot of money now, but what happens five or ten years from now? You'll still have the same house loan to pay. Will you still have the same income? Don't get caught up in maxing out your budget. Focus on getting a steady job first, and then you can commit to this long loan.
How Much Can You Afford to Pay?
If you feel that you can handle mortgage payments, figure out how high those can go. Team NRS National Real Estate Specialists say no more than 50% of your income should go toward your "must-haves." That includes your mortgage payments, utility bills, car loans, insurance, and more. Think about what your current bills are and what they are expected to be in a larger home – if you upgrade. Then determine how much money you can confidently spend each month.
What Do You Need, Not Want?
It is important to know the difference between your wants and needs when buying a home. You might have dreams of a three story house with a pool in the backyard, but you only need two bedrooms and a patio. You have to keep your needs in mind more than anything because that will get you out of fantasy land. Never look at homes out of your price range because that will make you think you need more than you actually do. Just focus on the must-haves so you don't end up searching for forever.
Is Now the Right Time to Buy?
Once you know that you are financially stable, you need to consider how stable the housing market is. Talk to a few realtors in your area to determine if it is a buyer's market or a seller's market. This will vary by location, economic conditions, and months of the year, so you have to find the setup that works best for you. If homes are selling at really good prices, a realtor is going to tell you that right away. Her goal is to sell homes. When you feel that it is a good market for buying instead of selling, make your move and secure a good price on your first home.
Is the Home Priced Well?
If you've ever watched an episode of Property Virgins or Property Brothers on HGTV, you know one of the first parts of the negotiation process is checking the comparables. That means looking at other homes that have sold in the area to determine if the one you want is well-priced. If it is priced right at market value, you might not want to place a very low offer on it. If it is priced well above market value though, you can use that information to get a better deal than the asking price. You can also see if a home is undervalued, as that may be an indication that the homeowner wants to start a bidding war. You're going to have to fight to get that home.
If you want to check comparables on your own, use a site like Zillow or Homegain to see what homes are selling for in your area. Then you can figure out what the right offer will be for the one you want.
Do You Have a Good Realtor?
Some first time buyers don't see the point in hiring a realtor to buy a home. You can just look on your own, right? By using the right realtor, you will gain access to homes that aren't yet on the market, and you will have someone by your side to tell you what a home should logically be priced at. This person will also do the negotiations for you so you don't get suckered into a bad deal. If you have the money to afford it, hire a real estate agent to be by your side. He or she will significantly improve your first home buying experience.
Is This the Right Home for You?
Above all else, you have to determine if the home you're set on is indeed right for you. Is it in the location you want? Is it priced well? Does it have the basic amenities you need it to have? Have you hired an inspector to make sure it is structurally sound? Keep all of these thoughts in mind when you go to choose a home, and then pursue the one you want wholeheartedly. If that happens to be the first one you see, go for it.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.