When undergoing the home buying process for the very first time, it’s important to work with a real estate professional and team who understand your goals and remain committed to negotiating the best deal for the house of your dreams. At Joseph Valdez Real Estate, we work hard to make your real estate search and purchase as seamless as possible. That’s why we’ve compiled the following ten tips and tricks to help guide you on your first home buying journey--because we believe the home buying process should be just as enjoyable as the first moment you step into your new house.
Tips For First-Time Home Buyers
1. Start Saving For Your Down Payment Ahead Of Time
Ideally, home buyers ought to plan for a 20% down payment on their house of choice. However, lenders will accept a lower percentage, and many first-time buyer programs will accept down payments as low as 3%. Keep in mind that a smaller down payment will most likely equate to higher long-term costs such as interest and mortgage insurance.
No matter the size of your down payment, you will want to start saving up before fully diving into the home buying process. We suggest starting a year or more ahead of time by setting aside any work bonuses and/or tax refunds as well as setting up an automatic savings plan. These days there are many financial apps, such as Acorns, that can help with tracking your savings progress.
2. Set Your Budget Before Applying For Pre-Approval From Your Lender
While saving for your down payment, it will also be important to start calculating your budget when it comes to house prices. More often than not, first-time home buyers will use the loan amount they’re pre-approved for as a guiding figure for their budget, but this amount is usually higher than what the new homeowner budget allows for. Before you even start searching for your dream home, make sure you know your budget, so you can approach the market with realistic expectations and make a wise real estate investment.
3. Explore Your Down Payment & Mortgage Options
As you most likely already know, having a higher down payment on a home leads to lower monthly mortgage payments. For the lowest possible mortgage rates, first-time home buyers can opt for a 30-year fixed loan. However, if your budget allows for higher monthly payments, you can select a 20-year or 15-year fixed loan. Keep in mind that adjustable rates will guarantee lower payments for the first few years but are more risky loan options overall. If you’re having trouble coming up with a sizable downpayment on a house, you have a few different options to consider:
Conventional Mortgages: As mentioned earlier, many lending companies will accept as little as 3% down for first-time home buyers. These loans adhere to strict guidelines set by Fannie Mae and Freddie Mac, 2 government-sponsored mortgage companies.
FHA Loans: These rates are insured by the Federal Housing Administration and accept down payments as little as 3.5%.
VA Loans: If you’ve served for the U.S. military, you might be able to qualify for a loan from the Department of Veterans Affairs, which don’t even require a down payment sometimes.
4. Include Insurance, Utilities, PMI, Maintenance, And Closing Costs Into Your Monthly Mortgage Budget
Although online mortgage calculators can be a huge help in defining your budget for the home buying process, there are additional costs to consider for a budget that will honestly reflect out-of-pocket expenses. If your down payment is lower than 20%, you will most likely have to pay for Private Mortgage Insurance (PMI), which is an additional payment to your monthly mortgage. Also, remember to include all utilities as well as budget for any potential repairs and maintenance.
5. Check Your Credit & Avoid Opening New Accounts
Your credit score will play a major role in your loan approval. Before even applying for a home loan, be sure to evaluate your credit report, dispute any errors, and pay off any major debts or collections owed in order to improve your score. You will also want to avoid opening any new accounts or applying for other loans in the midst of the home buying process, as these financial decisions will lead to new credit inquiries, which can negatively impact your score.
6. Compare Mortgage Rates From Different Lenders
Don’t just settle for the first mortgage rate you’re approved for. Here at Joseph Valdez Real Estate, we suggest obtaining quotes from 3 different lenders and comparing the rates and fees. According to the Consumer Financial Protection Bureau, this approach can save first-time home buyers over $3,500 over the first 5 years of their loan. Also, be sure to ask each lender if buying discount points is available. This will allow you to pay interest ahead of time for an overall lower interest rate on your mortgage loan. With this in mind, you’ll want to determine beforehand how long you plan to live in your home and if your current budget can accommodate the cost of the points.
7. Obtain A Pre-Approval Letter
Getting pre-qualified for a mortgage simply offers an estimate of the amount a lender is willing to loan first-time buyers based on the state of their finances. After you’ve decided on a particular house, you’ll want to go the extra step of obtaining a pre-approval letter from a lender, which includes a more thorough financial analysis and confirms in writing how much a lender will offer you and under what terms. This will make your offer stand out to a seller and give you a competitive edge over other buyers.
8. Research Neighborhoods & Locations
Whether you decide on a single-family home, condo, or townhome, you will want to be completely sure about the neighborhood and location your residential property resides in for long-term living and commuting.
While searching for your home, be sure to do the following:
- Take account of nearby schools (even if you don’t have children), as this affects property values in the area.
- Obtain local safety and crime statistics.
- Determine the nearest grocery stores, pharmacies, and hospitals and clinics--as well as other amenities that are a major priority to your household.
- Drive through the neighborhood at different times of the day to get an idea of overall traffic, noise, and activity.
9. Get The Most Out Of Open Houses
When looking at houses on the market, you will want to be keenly aware of many factors as you tour a home or visit an open house.
Be on the lookout for:
- Strange odours
- Visible stains
- Dilapidated areas
Also be sure to ask a lot of questions! You might even want to take notes about the following:
- When the house was built
- How long since appliances, flooring, and other fixtures have been serviced or repaired
- How old the HVAC system is
10. Hire A Realtor Or Real Estate Team That Understands Your Goals
Last but definitely not least, the key to success for first-time home buyers is doing business with a real estate professional and team that prioritizes your goals and sticks to your budget. Your real estate agent ought to listen to your criteria and concerns as well as offer expertise about the local market and lending process to get you the very best deal. At the end of the day buying a home is building your financial equity, and your real estate team should set you up for success.
Do you have any additional questions about the home buying process? At Joseph Valdez Real Estate, we specialize in Torrance residential properties and love giving first-time home buyers the pointers and guidance they need to secure their dream home right out of the gate. For more information, or to see current available listings in theTorrance area, please call us at (562) 388-3318!