First-Time Home Buyer's Guide

One of the primary objectives of the Fair Housing Administration (FHA) is to bolster the efforts of people buying a home for the first time. The agency needs an accurate recording of who is actually a first-time homebuyer to execute and monitor their programs efficiently. That requires a uniform definition for lenders to use when offering advantageous loan programs designed for people buying a home for the first time.

Owning a home is a financial commitment. In addition to the mortgage, you will incur expenses you may not have had to think about as a tenant. This may include lawn care, snow removal, utilities, homeowners insurance and property taxes. If the property is located in a community managed by a homeowners association (HOA), add the expense of monthly or annual association dues. Then, of course, there is the purchase and maintenance of major household equipment like the furnace and hot water heater, which is a landlord’s responsibility when you lease. Are you ready for these expenses now, or is buying a home a little further down the road? It’s important to always have an idea where you stand financially. As Marcus has said, “Stay focused, work hard, know your numbers, and be disciplined.”

Whether you are proficient at Excel spreadsheets or prefer pen and paper, create a document listing every current monthly expenditure. Create a column for each expense name, amount, due date and payment method. Then look at your annual expenses, such as memberships and vehicle property insurance (in some states). Divide annual expenses by 12, and add that number to your monthly expenditure. Compare the total monthly expense to your monthly income. Are there any cost items you can cut to build up your savings?

The reason you are buying a home will drive the must-have features in your property search. If your first priority is location, you may be limited on the style of home as some areas have predominantly older homes while others offer new construction. If you have a wide range of choices, consider whether you need one-level living, move-in condition, old charm or acreage for pets or children to explore.

Browse the web to find out the average cost of homes in your target locations. Then check an online mortgage calculator to estimate your monthly payments based on a rough home value and your down payment. When you are ready to meet with a lender, compare loan interest rates across different financial institutions, including banks and credit unions. Before you begin shopping for a home for the first time, apply for a mortgage pre-approval. Not only will this filter your home search, it will also represent to real estate agents and sellers that you are a bona fide buyer.

If you are buying a home for the first time, you may benefit from working with a real estate agent. Realtors can work for the buyer or seller. Agents who represent both are called dual agents. Discuss this with the agent to be sure you are represented. A buyer’s agent will gather your preferences, preview homes and escort you to see properties that meet your criteria. It is standard for the seller to pay the commission.

The “right” home varies from one individual to the next. Some people find it helpful to draft a list of preferences and prioritize the items on the list. If you have seen a half-dozen houses, and the next one meets all your priority criteria, be prepared to make an offer. In a seller’s market where there is a large pool of buyers competing for a low inventory of available housing, it’s best not to procrastinate and lose the opportunity to another buyer.

If you are represented by a real estate agent, the agent will present the offer on your behalf to the seller’s agent. Discuss strategy with your agent. Many buyers like to offer less than the asking price to leave room for negotiation. But if there are competitive bids on the property, and you love the house, you may want to offer full price.

The lender requires that a qualified professional inspect the property, and it is in your best interest as well. Your agent can recommend a local inspection company. Even if the inspector finds no major issues, it is helpful for you to be present for the inspection so you can learn the mechanics of the home. The inspector may also be able to give you a sense of when you may expect to need a new roof, boiler or other major item so you can budget accordingly.

If the inspector finds an immediate issue, talk to your agent about negotiating for the owner to arrange repairs or a credit at the closing. If issues cannot be reconciled, you may decide to move on. Hopefully, this won’t happen, and you can close on the home. This is when all the documentation is signed. Depending on your location, this may take place at the office of an attorney or title company.

In addition to your down payment, you will also be responsible for closing costs. Closing costs are typically 2% to 5% of the purchase price, depending on the location, type of loan and property itself. These are costs you need to cover at the closing table, which includes a wide spectrum of fees, such as fees for the application, appraisal, attorney, inspections, insurance, taxes and many more.

Initially, it may be challenging to continue saving, but a house has a way of presenting unexpected issues. When you least expect it, something will break or deteriorate from age. Since some of these things are urgent, it is good to have some savings set aside so you don’t have to scramble for funds at the last minute.

Although property is an investment as well as a home, continue to build your retirement account. Some people downsize and use some of their equity to help fund retirement, but you may want to stay in your home. Also, there is no way to know what the housing market will be like when you are ready to sell.

Buying a home for the first time is an exciting and stressful adventure. At the end of the day, remember that this purchase is much more than the money it is worth. It is about the memories you will create and a place to call home.