Buying your first home is one of the most exciting things you’ll do. However, if not prepared, it can also turn into one of the most stressful things you’ll ever do. So, we’ve put together a list of 10 things you should know before buying your first home in hopes of alleviating some of that potential stress.
1. Know how much you can afford.
Use a purchase calculator to get an accurate picture of what you can personally afford. Put a budget together and remember to stick to it.
2. “Pre-qualified” is not the same thing as “Pre-Approved”. Know the difference.
A “pre-qualification” is simply a tactic that mortgage lenders use to get you in the chair. Everyone likes the sound of being “qualified” for something. However, a “Pre-Approval” will actually require a detailed look at your finances and credit in order to obtain an actual amount that you are approved for.
You might find that the “pre-qualified” number is significantly higher than the “pre-approval” number. This is a common misconception, so don’t be discouraged. Simply move forward with the “pre-approval”. This gives you a solid number to go shopping with and you will want to aim below the budget number.
3. Know your credit score.
When preparing to buy your first home, you should obtain a copy of your credit report so that you know exactly what is on there before bothering to apply for a home loan.
If there are items on your credit report that you are unfamiliar with, it is a good idea to work on disputing them and cleaning up the report before any applications take place. This could mean the difference of a lot of money in your pre-approval.
4. Know which kind of mortgage you should be looking for.
Ask your mortgage banker which mortgage is right for you. There are several out there and it can be overwhelming if this is your first home. Your mortgage banker should be able to point you in the right direction depending on your need.
A mortgage will depend on a few things, such as: your current income (is it steady or fluctuating?), your current desire to remain in the house, and if you are expecting a major life change any time soon.
5. Know what kind of documents you need.
When preparing to begin the home buying process, start gathering your financial documents. You’ll want to dig up the last two years’ of W-2’s, current pay stubs, and other financial/bank asset statements.
6. Know what it means to make a “Reasonable Offer”.
Do not make this decision on your own. Assuming that you have already selected a great real estate agent (Check out our blog on 5 Questions to Ask Your Real Estate Agent
), you should have proper consultation from him/her regarding what an appropriate offer should look like. Listen to their advice.
7. What is a purchase agreement?
Essentially, your purchase agreement is your contract with the “fine print”. It details out what appliances you’d like to keep in the home, what your final offer was, who is going to cover the closing costs, etc. The purchase agreement can be assembled by your realtor or title companies. If you are not working with a realtor, seek the advice of an attorney.
8. Take advantage of the home inspection.
This is not a waste of time. The home inspection is worth every thought that goes into it. The home inspection can help you avoid serious nightmares. You’d hate to buy a home only to discover after the fact that you actually had a major termite problem, right? Well, a home inspection should catch all of those factors and the repair costs can actually be negotiated from the purchase price.
9. You need homeowner’s insurance. Plain and simple.
As stated above, you need it. No if’s, and’s, or but’s about it. Before you close on your home, you will need the homeowner’s insurance.
10. Be prepared and educated about closing costs.
It is required by law that mortgage lenders submit, in writing, your estimated closing costs and fees. If this is not provided to you, stop what you are doing. Remember that this is only an estimate at first. At the end of the process, you should receive documentation stating your exact closing cost totals.
Always ask to be given a final walk through of the home and bring along anyone you deem necessary to help you (including your agent and possibly the lender). Once all checks have been handed out and keys are in your hand, congratulations! You are a homeowner!