Buying a house is always an important decision. But if it’s your first time buying a house, it’s arguably even more important. A wise first-home purchase can put you on a trajectory for building equity and wealth over time. A poor decision on your first home purchase could leave you in a financial hole.
From looking at what you can afford to choosing a good location, let’s look at some tips for buying your first house.
- Determine What You Can Afford
Most first-time homebuyers follow a very similar path toward homeownership. It typically starts with contacting a lender to see how much house they can afford. The lender asks some questions, gathers a few documents, and then spits out a pre-approval number. This figure is usually based on the borrower’s income, debt-to-income ratio, and credit score.
Once the lender tells the borrower how much house they can afford, the typical borrower uses that number to start looking around. But here’s the problem with that: The bank doesn’t know how much you can afford – just how much you’re able to pay each month.
In other words, they’re running a calculation to make sure they get paid and that you don’t default. They don’t care about how much money you have left in your budget to spend on other monthly expenses. So while the bank might say you can afford a $2,000 monthly mortgage payment, it’s possible that spending this much would drain your budget and prevent you from affording other essential expenses.
If you merely listen to a lender and don’t run your own calculations, you run the risk of becoming house poor. (And if you speak to any homeowner who has been through this experience in the past, they’ll quickly tell you that this is no way to live.)
That’s why we recommend speaking with a lender and then running your own numbers. Just because you get approved for a certain dollar amount doesn’t mean you have to spend it.
- Do Your Due Diligence
Once you find a property that you’re interested in, be sure to do your due diligence. Real estate transactions are complicated and should never be taken at face value. Be on the lookout for any potential issues related to ownership, title, liens, etc.
The right professionals can help you perform detailed due diligence. For example, a conveyancing expert in Brisbane might be important if you’re located in Australia.
In the United States, you’ll want to get title insurance when buying a house. Aligning yourself with the right team will ensure your home purchase goes smoothly.
- Save Up for Closing Costs
A lot of first-time homebuyers are shocked when they discover how much cash they’re expected to bring to the closing table. They’re usually prepared for the down payment (which might be three to five percent), but they don’t always account for the other fees.
Possible closing costs include application fees, appraisal fees, attorney fees, closing fees, courier fees, credit reporting fees, escrow funds, discount points, mortgage insurance, HOA transfer fees, etc. When you add them all together, it may cost you as much as three to six percent of the home price.
- Pick the Right Location
You’re not looking for your forever home – just your first home! When you recognize such, it relieves a lot of the pressure. Suddenly, you don’t have to plan 30 or 40 years into the future. You can look at the next three to five years and view the purchase through that lens.
With this in mind, don’t get so focused on minute details. Instead, look at the big picture. Since it’s very likely that you’ll sell your house within the next five years (most first-time buyers do), your biggest focus should be location and resale value.
Buy a house in a location that’s trending in the right direction. You can always renovate and update a house, but you can’t change its location. Choose wisely and you’ll never have trouble getting your value out of the house on the back end.
Find the Perfect First Hom
The perfect house isn’t necessarily the house that checks off every single box on your list. (Plus, that’s almost impossible to find.) It doesn’t need the perfect shade of paint or the best yard on the block. Instead, the perfect house is the house that works for your family. It’s a house that fits your budget and gives you a safe place to proudly call home for the next several years.
By planning ahead, you can make sure you find the right house for your family!