Buying your first home can be exciting, overwhelming, and even intimidating. There's so much to do to prepare for the purchase; some you should do even before you begin to look for homes. Then, once you find the perfect home, the next stage starts – the negotiation process, and then finally, it's time to move into your first home.
You'll need to be financially ready when you want to buy a home. Most first-time homebuyers will want to finance their homes rather than save up to pay cash.
You'll need to have an established credit record and good credit score so the mortgage company will be more inclined to give you a good rate on your mortgage, which can save you lots of money over the lifetime of your loan.
You should pull your credit report before starting the home-buying process to see what it shows. If there are any mistakes or errors on the report, you'll want to know sooner rather than later so you can work to address them and resolve them.
Once you know your credit score is good (check with your mortgage broker to find out what score you'll need to qualify for a loan), you can move on to the next step, including the pre-qualification process.
Once you know your credit is good enough to qualify for a home mortgage, you want to work with your mortgage professional to determine how much home you can afford. Your monthly mortgage payment will include mortgage, payment (principal and interest), property taxes, homeowners’ insurance, and likely private mortgage insurance unless you have a 20% down payment on your first home.
Your mortgage lender can help you determine how much mortgage payment you can afford. There are qualification rules, and your other debt will play a role in your overall income-to-debt ratio. The amount of your car loan, student loans, and credit card payments will also be considered when determining your mortgage payment.
How much down payment do you need?
The amount of your down payment can be dependent upon several factors. You must put down minimum amounts, which can be as low as 3% for FHA loans, 10% for Conventional, and up to 20% if you want to avoid private mortgage insurance. The higher your down payment, the lower your monthly payment because you're borrowing less money to purchase your home.
Your mortgage lender can run you through the qualification process and tell you how much you can spend on your first home. They can give you a pre-qualification letter that you submit with your offer, so the seller knows you can get financed. This makes you a more attractive buyer because the seller knows you'll get your loan.
Your mortgage lender will let you know how much you can borrow, at approximately what interest rate, and approximately what your monthly payment will be for the term of your loan. Most buyers opt for 30-year mortgages, but if you can opt for a 15-year mortgage, you will save significantly on mortgage interest over the lifetime of your loan.
If you had a realtor you worked with before starting the qualification process, now is the time to follow up with them and let them know what your mortgage lender has said you qualify for so you can look at homes. Stay within your budget. It's easy to fall in love with a home that's out of your budget, and then it's heartbreaking because you can't afford the one you're in love with.
Your first home probably won't be your forever home or dream home. It's your first home, which is a huge accomplishment. List your most important items and focus on finding a home with as many of them as possible. You may be unable to find everything on your list, and you want to know what's most important to you.
Do you want to be in a specific school district? Are you looking for a work commute under a specific time? Are you looking for a new build or an existing home? Are you looking for a move-in ready home, or are you willing to do some repairs, replace the carpet, or repaint a house? Think about what's most important to you and communicate that with your realtor.
Are there specific areas you want to live in or areas where you don't want to live? It's good to know that as well. If unsure, you can always drive around your town and look at different neighborhoods to get a feel for them.
Now comes the fun part. You get to start looking for your first home. Spend some time touring homes with your realtor. Talk about what you like and what you don't like about each one. Sharing your thoughts on the houses will make it easier for your realtor to find the perfect first home for you.
You'll want to work with your realtor to write an offer when you find the one you love. They'll guide you through the offer, potentially a counteroffer, the inspection, and ultimately your closing.
When you write the offer and the seller accepts it, you'll likely move in 60-90 days. You'll have several more steps, including your mortgage going through the underwriting process. You'll have to answer questions and provide documentation to the underwriters if they have questions (they often do, so don't get worried).
You'll need your down payment, but that's not the only money you'll need to buy your home.
You'll also need your share of the closing costs. Your realtor can help explain exactly what they cover and estimate what you'll need to bring to closing.
You'll also need to get homeowners insurance, and you may have to pay transfer fees to the HOA if you're buying in a community with one
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You will want to have money in reserve after you pay your down payment and closing costs. Homeownership can have unexpected expenses. If you don't already own a washer and dryer, you'll likely want to buy them right away. You may need to buy a refrigerator if the owner isn't leaving theirs behind (they don't have to); you'll want money in savings in case something happens, like the water heater goes out or the ac needs repairs. It's a good idea to have 3-6 months' worth of living expenses in your emergency fund if something happens with the home.
If you're ready to buy your first home in the Tucson, AZ, area, please contact us today. We love helping people get into their first homes and guiding them through what can be a stressful process.
