You’ve been renting all your life. Now you want to settle into something you can call your own. As someone who’ll be buying a home for the first time, you might find the process a little overwhelming.
But that’s exactly where this article comes in.
Worry not for now. We’ve exhausted the most useful home buying tips and negotiating tricks for you.
Let’s get you your first-ever home.
Conduct Proper Research
Will you go through a battle empty-handed? It’s least likely. In the same way, you wouldn’t just rush into open houses to check out potential homes.
Even if you’re the intuitive type, home buying isn’t something that can be accomplished on a whim — unless you’re already a billionaire and an expert. And you aren’t, yet.
So since we’ve established that it’s your first time to buy a house, you need to go through the basics.
Before you even go checking on houses, do some research yourself. You’ll save so much time, effort, and gas.
Ask yourself the following questions.
1. Can you afford the average price of houses in the market?
This question challenges your readiness level. To answer this, you need to have knowledge of the current prices in the housing market.
So go online and search for property listings. You’ll soon notice that there’s an expected price range per type of home. A smaller townhouse or single-family home would be cheaper. Meanwhile, a high-end stand-alone house near the busiest city centre could have a skyrocketing price.
Begin to set your expectations around these varying price ranges. Then revisit your finances. See if you can allot the expected monthly mortgage payments for a particular house. And determine if you go “house poor” if you’re actually getting the house.
Important: Set a budget but avoid reaching your income ceiling. As much as possible, purchase only “less” than what you can afford. Not more. And not even equal to. Remember to have some cushion.
2. Do you have enough savings?
That is to say, have you prepared extra money for the expenses that could blow up once you become a homeowner?
You see, your monthly house payments will not only cover the principal and interest. There’s also property taxes plus insurance. And then there might be additional repairs, upgrades, renovations, and maintenance expenses. All these could strike a blow to your usual monthly budget.
That said, you may be ready to sign up for a $1500 monthly mortgage but turn out to exhaust your income for unprecedented expenses.
Well, you don’t have to surprise yourself. Save first. Have an emergency fund for anything related to your homeownership needs.
And speaking of savings, set aside a chunk for your downpayment. This part actually brings us to the next question.
3. What are your downpayment options?
Most housing deals set the downpayment at 20% of the home’s value. For a $300,000 home, that’s going to be $60,000. The remaining 80% will have to be financed by a mortgage institution.
Depending on the state where you’re in, you can get more affordable downpayment options. Especially for first-time homebuyers. Some deals offer 5% or even up to as little as 3% down.
But putting in a higher downpayment can actually save you more money in the long run. A downpayment of less than 20% could mean paying for mortgage insurance. It also means paying up higher totals in interest.
So this is why it would’ve been better if you started saving up before deciding to buy a home. You can set aside tax refunds and year-end bonuses for a few years. Then use the funds to make a larger downpayment. You will save much on the mortgage interest that you’ll be paying up for the years to come.
4. What will the monthly repayments be?
I’ve briefly touched on this earlier, but let me emphasize a few more things.
The amount you’ll be spending each month will depend on how much you’ve given for the downpayment, as well as the number of years you’ll be paying the mortgage. The interest rate also factors in.
For lower monthly repayments, go for a larger downpayment. Then stretch your obligation to a 30-year fixed-rate mortgage. If you want to finish it up faster, go down a little to 25 years. Or 15. Or 10. As long as you can afford it.
To give you a picture, assume a loanable amount of $300,000. This is the remaining amount you’re going to borrow from the lending institution after paying the downpayment. Assume the interest rate is at 7%, and you’re taking a 25-year mortgage. Your monthly repayment will be $2,120.
If, however, you’re only loaning $200,000, your monthly repayment over the same period will be at $1,414. While this means you’ve had to pay $100,000 upfront as part of the downpayment, you can certainly save more in the long run. And that’s because you’re paying much less in interest.
5. What other upfront payments will be needed?
You need to be aware of and ready for the other upfront fees when purchasing a house. These fees typically include the following:
- Stamp Duty. This varies from state to state. It could cause a big bump on your budget as it can cost around 4% of the property value.
- Transfer Fee. This covers the costs of transferring the title. Again, the fees vary across states.
- Mortgage Registration. This won’t be much. Among many states, it will only be around a few hundred dollars.
- Legal Fees. This covers all the necessary paperwork. It may cost you less than $1000 to over $2000.
- Mortgage Application. Banks may charge you a little for the processing of your mortgage application.
- Lenders Mortgage Insurance. This is the additional insurance usually required if you hand in a smaller deposit. That is if it’s less than 20%. The mortgage insurance will be about 1–3% of the loan amount.
- Inspection Payments. Home inspections are essential. This includes pest and mould inspection, and could actually save you a lot of money. If you neglect this, you may have to suffer from hefty pest removal fees, which you could have avoided entirely.
- Insurance for the Home, Building, and Contents. Home insurance could cost you around $1000 a year, plus an additional $500 for the contents.
- Moving Charges. Move-in fees may range from $550 to $3500. The costs could depend on how much stuff you have to bring in with you.
- Gas, Electricity, and Telecom Payments. As much as possible, negotiate this part with your seller. Let the existing services stay in place to avoid hefty reconnection fees. The process would also be more straightforward if you only have to transfer the ownership.
All in all, these upfront costs can reach from 7–11% of the purchase price. For a $375,000 home, the upfront fees could be more than $40,000 above the deposit.
I know it’s a bit hefty, but first-time homebuyers may be granted exemptions. Be sure to ask your agent about these fees and see how you can save more.
Tips When Applying For A House Loan
Money, money, money. Unless you were already growing a pile of cash, you’d have to apply for a house loan. Check out the following financing tips.
1. Check Financing Options
After setting the monthly payments you can be comfortable with, it’s time to compare multiple lenders.
List down the lending institutions around you and their corresponding mortgage rates. Take note of their loan fees and see reviews of their customer service. Pay attention to how they respond and communicate with you.
More importantly, calculate how much you can save if you choose one lending institution over another. Even half-a-percentage point on the interest can make a lot of difference in the long run. With careful consideration, you could save tens of thousands of dollars over the decades.
2. Search For Local Assistance Programs
Some states offer mortgage assistance programs for first-time homebuyers. These programs may provide you with assistance on the downpayment, closing costs, and tax credits. They may even grant you discounted interest rates.
Take time to research for these first-time homebuyer programs in your state. It can help you save a lot in fees.
3. Check The Amount Of Mortgage You’re Qualified For
After picking a loan agent, you’ll work together to determine the right mortgage for you. You’ll report the percentage of your income that you’re willing to spend on the monthly mortgage payments. You’ll be required to show your proof of income and employment status. The lending firm may also ask for additional financial documents.
Once the evaluation is done, you’ll have a strict budget to set your eyes on. You’ll be approved for that loan amount. And then you could begin looking around.
4. Always Speak With the Professionals
But before taking any step further, it pays to consult a professional. See your financial planner if the decision to buy a home would be financially healthy for you.
Note that a mortgage firm may be willing to lend you more than what you need. In this case, you could be tempted to reach that ceiling. Then you’ll end up overestimating what you can afford.
By speaking to a professional financial planner, you can reevaluate your homebuying plans. You can take a second look at the other investments you’d still want to accommodate. Then, you may readjust your mortgage ceiling according to your future financial goals. Remember that a mortgage typically runs for decades. And you’ll always have to give room for maintenance costs and emergency repairs.
House Shopping Advice
When everything about your budget is settled, it’s finally time to shop for a home.
1. Look For A Real Estate Agent
A real estate agent can shortlist for you the homes that fit your requirements. Agents can find the kind of house you like. With the right number of bedrooms, the ideal size of the lot, and all your other wishes. Of course, the agent can filter the choices to show you only those that fit your budget.
With the right agent, you can save time and effort on house hunting. You can even save your own fuel as agents typically give you free tours around homes.
2. Look At The Neighbourhood
If you’re already eyeing a particular house, look around its neighbourhood. Check out the other homes and the neighbours around. See if the community matches perfectly with your vibe.
Imagine yourself living in the area and take note of anything that might not suit your lifestyle. See the nearby restaurants, shops, and parks. If you’re having a kid, identify the nearest school district and determine if it’s of excellent quality.
3. Stick To Your Budget
I’m sure I’ve done my part of emphasizing how your finances can blow up once you’ve bought a home. In a sense, the house can become a “liability.” If you don’t want to complicate your financial status, be sure to stick to your budget. After all, you’ve already planned it carefully.
4. Attend Open Houses
Now you’ve got an agent to help you look for your kind of house. Then you have a lender to finance your first home within the budget you’ve set. At last, it’s time to visit potential houses and be serious about it.
Your agent will be with you as you go through those listings that match your preferences. You’ll attend open houses — you’ll be inside a potential home. You’ll have to see for yourself how each listed feature really looks in person. And this part should be fun!
5. Always Get a Building Inspection
The not-so-fun part is conducting a reality check. A house may look so beautiful by design and feature. But, it could have many hidden flaws. You’ll have to know for sure, and you can do that through a professional home inspection.
A licensed home inspector can identify the areas or systems that need repairs. Inspections can bring up many crucial deal breakers. These include the presence of pests, mould, or cracks that pose risks to your safety.
Home inspections actually play a vital role in the whole process. In a few states, a home inspection is conducted before you make an offer to buy the house.
In other states, you make the offer first before the inspection. The inspection then becomes part of the contingencies in the contract. It simply means that you (the buyer) can cancel the contract if the inspector’s report reveals a deal-breaker.
6. Ask for Friends and Family to Assist
Sometimes, first-time homebuyers could fall in love with a home at first sight. But it could be “blind love.” If you fall into this trap and you’ve set your heart out for a particular home, it may not be totally healthy. You could rush things just to buy the house, only to find reasons for regret later.
To avoid that trap, you can ask your closest and most trusted friends and family for help. They can view the listings with you. When people are not directly involved in a financial decision, they’re usually better at seeing things as it is.
An honest friend may be able to identify significant flaws that you couldn’t. Your mom would know by experience how a place could be too fancy and impractical. Your brother or dad would know if a potential home actually has underlying security issues.
So always ask for a second opinion. Or even a third.
Getting The Best Deal Out Of A Negotiation
Negotiations can be a headache. They could be the least favourite part of many homebuyers. But if you want to ace it, follow the tips below.
1. Use A Buyer’s Agent
The right real estate agent could make all the difference. He or she should be someone you can get along with. The best agents are experienced, knowledgeable, highly-skilled, and actually motivated to help you. They’d be honest with you if a listing is overpriced. Or if a house and the area it’s in could have potential issues.
With an excellent realtor, you can save a lot of time. He or she knows how to listen and execute according to your preferences. The best realtors will be with you until the closing phase or even beyond. And they already have a network of loan officers and real estate lawyers to smooth out the whole process.
2. Learn The Seller’s Motivation
A desperate seller will be easier to negotiate with. If your potential seller needs to get out of the mortgage asap, then you can effortlessly get a bargain.
You can actually spot the seller’s desperation by taking a few observations. Sellers that are too honest and tell you every bit of information quickly (even the bad aspects) are honestly desperate. They want to know if you’re all in for it. Immediately.
Other sellers have moved out of the home to a new one. The listing is already empty, and the sellers want to “get rid” of the former house to save their own finances.
Meanwhile, some sellers are not so motivated to sell yet. They view their house as a significant investment and will be looking for the best and highest offers. It won’t be easy to negotiate with them.
3. Find A Middle Ground
Is there a middle ground where lower prices and more options could meet? Seek to find that point with the help of your agent.
Somehow, the timing could also factor in. Low prices are usually offered in the fall. You can then expect to buy in the wintertime.
If you think you have plenty of time to explore a few more options, start looking in the spring. You could then buy it in summer.
If you want a balance between price and variety, it could help to check out homes during summertime. And then you could buy before autumn begins.
Meanwhile, finding a middle ground could also mean making a few compromises. Especially if you’re looking to buy now. But then again, you need to review your non-negotiable preferences. Consult your financial planner, and seek guidance from your trusted friends, family, and partner. Of course, you’ll also need your agent to work the matter out with you.
4. Make Special Conditions
As much as finding the middle ground is ideal for both you and the seller, you’d want the odds to be in your favour. So maybe, skew it a little.
For example, if the seller is looking for a quick settlement, you can negotiate to settle in a reduced time frame. That is if they’d cover any additional payment.
And, remember the contract contingencies we mentioned a while ago. Be sure to get your deposit protected by a home-inspection contingency. It allows you to back out of a deal and get your money back in case of a faulty foundation. Or a massive termite infestation.
5. Prepare To Walk Away
Once you’ve decided to make an offer, your agent will present that offer to the seller’s agent. Now the seller could accept that offer or actually make a counter-offer. You may take it if it’s fair enough, or you could go back and forth with the negotiation until you reach a deal.
But if you just can’t agree, prepare yourself to walk away. If the seller is pushing their wishes too hard, you could end up compromising your needs. Walk away with your head up high. It’s not worth it if you’re not getting the result you want.
Questions You Should Ask
While you’re going through the home-buying phase, it’s vital to know the questions to ask.
1. Why Are They Selling?
I spoke about this a little bit before. Remember, learn the seller’s motivation. You may not need to ask this out loud to find the answer. You could ask through your agent. But, if you’re bold enough, you could inquire from the seller politely during a visit. Just why are they selling?
If it’s because the house has become problematic, then that’s a red flag right there.
2. Are They Looking To Sell Immediately?
Is the seller desperate enough? If so, you might take advantage of it during the negotiation. You could land on an excellent deal if the seller finds a sure buyer in you.
3. How Long Has The Property Been Listed?
If it’s been sitting for too long in the market, then be cautious. There might be a lot of problems in the property. It could be the structural integrity of the house itself, or, it could be the location. Still, it could be that pretty colossal price.
You might also want to know the number of viewings. This will help you gauge the interest in and the competition for the house.
If a listing is relatively fresh, you could ask your agent to investigate thoroughly. You’ll soon see if the house is a jewel and you’re just lucky to be the first to look.
4. Is The Price Flexible?
You love the house, but it’s a little over your budget. Ask if you may have a discount on the price. It’s going to be your starter home, after all. Again, don’t be too shy about bargaining. You would want the best value for your money.
Also, if the price is indeed flexible, you can re-rank the house on your priority list. The flexibility can even become the deal-maker.
5. Are There Any Known Issues On The Property?
These could range from structural issues to security, location, accessibility, and disaster-risk problems. Assess if the seller is being honest about it or you could back off a little.
If the house is being sold for all that mess, then you wouldn’t want to be the one to inherit all the trouble. Know what these underlying issues are. Again, never fall for a house blindly.
Common Mistakes You Can Avoid
Speaking of falling in love blindly, here are some common mistakes you can avoid when buying your first home.
1. Looking At Homes Before Applying For A Loan
But you’ve probably done it anyway. In fact, many first-time homebuyers have fallen precisely into this trap. They were inspired. But you could only imagine their subsequent disappointment once they’ve found they simply couldn’t afford it.
Avoid a similar heartbreak. Be wiser by setting your financial house in order first. Apply for a loan then go, look for what you can actually get.
2. Talking To Only One Lender
Expand your options. You’ll never know how much you can save by choosing another lender over the first one you’ve met.
Compare the interest fees. Contrast the bundles. Calculate the discounts and sum total costs by the end of the mortgage period.
3. Draining Your Savings
Avoid reaching the ceiling. You might have saved a lot, but you shouldn’t shed it all off. Just because you can doesn’t mean you should.
If possible, spend only half of what you’ve saved, and leave the rest for a safety cushion. Better yet, ask your financial consultant about how much you can shell off and still remain financially healthy.
4. Being Careless With Your Credit
Even if you’re already pre-approved for a home loan, you shouldn’t be too careless about your credit standing. While working through the process of home buying, don’t add new loans. Stop relying on credit cards for your daily expenses. Don’t incur new debts.
Even better, fix your current payables. Show your lending institution how you can be trusted with the loan. And that you won’t go taking the desperate seller’s place soon.
You’d want to live in your first home. Not resell it only a few months after signing up for it.
5. Focusing On The House Over The Neighbourhood
Sure, you’ll want to embrace a lovely home. But that can’t be the only thing you’ll do all day. You have a life outside, and the kind of neighbourhood you’ll be in could determine if that’s a happy life.
So make sure your chosen home is excellent, but never ignore the neighbourhood where it sits. It should be safe, secure, accessible, friendly, and vibrant.
In case of emergencies, it helps to have neighbours to call on. In case you’ll arrive home late, it helps to know there’s a guard or two around the community. And there are lights and cameras on the streets to tell criminals to back off.
6. Making Decisions Based On Emotion
To be on the safer and happier side, get a balance between logic and feeling. So yes, emotions are helpful. After all, you need a home that makes you feel comfortable and welcome. It should be a home that gives joy. A house that takes away your stress.
But again, be wise about your choice. A home that’s too chic — but will cost you your month’s wages — will end up being a stressor.
A home that looks so elegant outside but has rotten interiors could send your cash down the drain.
A house that sits on top of a hill with amazing views could send you too far away from your workplace or lifestyle centre. The hills may be alive, but the sound of bar music would be unheard.
Well, I won’t judge your preferences.
7. Miscalculating Hidden Costs
A home that’s bought just because it’s the cheapest could mean getting you broke. Imagine all the repairs you’ll have to handle.
Also, if you skip the inspections, you could waste a lot of money in anti-termite treatments. The heating or cooling systems may have been broken, too. An upgrade could turn your financial status upside down.
Or, the property taxes in the area could end up being too high for your budget. Once you’ve signed up, you’ll have to pay your legal obligations yearly.
Moreover, you could end up spending too much on fuel because the home was too far. It was a cheap listing, but you never thought of spending so much on gas instead.
First Time Home Owner Hints
At this point, I think I’ve left you thinking twice about buying your first home. Of course, I’d like you to give it a second thought. Especially if you don’t feel ready yet.
But somehow, I know you’re determined enough. So take a few hints from below. Go buy according to the guidelines above, but remember the following follow-throughs.
1. Keep On Saving
Shelling off funds doesn’t end at the closing of the deal. Well, it’s quite obvious that you have to pay for the monthly mortgage now. But other than that, you have to keep saving for emergencies.
The fact is you’ll never know what ill fate happens next (though no one’s wishing it). So be ready and save at least two months’ worth of monthly payments. These funds will serve as your buffer.
Aside from keeping a mortgage repayment buffer, save for repairs. Set up a separate emergency fund for your home. You won’t want surprises if your living conveniences are at risk.
2. Have Regular Maintenance
Minor inspections and troubleshooting, done regularly, will save you the costs of a one-time, big-time repair.
Keep your property problems small and manageable. Since you’re putting a lot of money into your house, take excellent care of it.
You could use the emergency fund you’ve built from above. But keep on replenishing the fund as you go.
3. Don’t Rely On Your Home To Fund Retirement
Owning a home doesn’t mean you can now relinquish your retirement savings. Keep that retirement savings account. Save the maximum.
If you’re planning to sell your house in the future, you won’t necessarily make a fortune. You could even end up selling for less than the home’s initial value, depending on how the market performs.
If you really want to squeeze out some money from your home, then wait till you’ve paid off your mortgage. The money you used to spend on the repayments could be diverted into additional retirement funds.
But then again, don’t rely on your first home as if it’s a milking cow.
For now, save for it, look for it, pay for it. Then live in it and fully enjoy your first-ever home.
Want more of these tips? Check our other posts here!