You have probably conjured up the American dream in your head, at least once or twice. The big house with a white picket fence, the lush green garden, and let’s not forget the porch swing. However, as much as the dream sounds downright delightful, the reality of it is not so simple.
Buying a home is stressful and a big step to make for anyone. (If you are a family of four or even your average Joe who is getting by, it’s a big deal.)
Many Americans dream of buying a home for themselves. However, this is a very big goal that can easily be handled incorrectly. There are strategies that you can follow which can help prepare you to become ready to be a homeowner!
Being a First-Time Homeowner: What Does It Mean?
In order to be considered a first-time homeowner, there is a specific criterion that you need to be eligible for. According to the U.S. Department of Housing and Urban Development (HUD), “a first time home-buyer is someone who meets any of the following criteria:
- An individual who has not owned a principal residence for three years. If you’ve owned a home but your spouse has not, then you can purchase a place together as first-time homebuyers.
- A single parent who has only owned a home with a former spouse while married.
- A displaced homemaker who has only owned property with a spouse.
- An individual who has only owned a principal residence not permanently affixed to a permanent foundation in accordance with applicable regulations.
- An individual who has only owned a property that was not in compliance with state, local, or model building codes—and that cannot be brought into compliance for less than the cost of constructing a permanent structure.”
If you check any of these boxes, then congratulations, you are considered a first-time homebuyer. (At least, according to Uncle Sam and the Federal Government.)
What You Should Think Twice About Before Buying a House (Or Three, or Four Times)
The first aspect you should consider before buying a house is identifying your long-term goals and if buying your first home fits in with those goals. If you are thinking that buying a house is a form of self-sufficiency and independence on your part and you prefer being your own landlord, rather than your actual landlord, then buying a house is the right call for you.
If you are also looking to make a good investment, on yourself and your future, then buying a home is the right option for you. But, if you are still unsure and a little scared of words, like “big picture” and “long-term”, then you can just think about these questions. (Let’s take it slow. Breathe in, and breathe out.)
1. What is Your Financial Status?
Before pinning new landscape ideas on Pinterest and planning your color scheme, you should seriously take a good look at your finances. You will need to be carefully prepared for the purchase of your first (and possibly forever) home and the expenses that follow. (Electricity and water does not pay for itself, no matter how much you wish it did.)
Once you audit your finances, you will be able to identify whether you are ready to buy your first home, or if you need to plan more.
To look through your finances, you should look at the following aspects, in order to understand the inner workings of your wallet.
The first thing you should do is take a peek at your savings. Do not even think about buying your first home if you do not have an emergency savings account that could cover three to six months of living expenses. There is a possibility that there will be costs that are required upfront and you cannot just show up empty handed and sweetly ask for the keys.
The second thing you should look through is your spending. You should review your expenses, which is basically how much you are spending and where it is all going. (That includes the Amazon packages that you have been secretly ordering online.) By finding out how much you spend each month, you will be able to find out how much you can allocate to a mortgage payment.
The third thing you should consider is your credit. Typically, for you to qualify for a home loan and maintain a responsible image to your lender, you will need good credit history. (This means that you should pay your bills on time, which is hard but necessary.)
2. What Type of Home Are You Looking For?
There are so many different types of housing units that might catch your eye. There is a traditional home, a townhouse, an apartment, a duplex, and so on. Of course, each option has its perks, but you should think about the house that would best fit your needs.
There is always the possibility of saving some money on the purchase price by choosing a fixer-upper housing unit. However, you should know that a fixer-upper might be more than you bargained for. (Plus, it takes twice the amount of time, sweat, and tears.)
3. What Specifications Do You Want In Your Perfect Home?
This could be considered the biggest thing you could ever buy in your life, so you deserve to have your home fit the dream home you imagined in your head. You should keep it short and simple, where you would include basic specifications and amenities. (Less built-in theater, and more, two bedrooms.) If you have not spent any time daydreaming about your forever home, then you can always scan through potential real estate options and find what suits you.
4. How Much Mortgage Can You Get?
Let’s talk logically for a moment, so pull out your calculator. It is imperative that you get a general idea on how much a lender will be willing to give you. There are several factors that could determine your mortgage payment, such as: your income every month, how much debt you have racked up, and how long you have been at your job. Also, you will find that realtors are discouraged when clients do not remain transparent on how much they can afford to spend on their future home. (It’s okay; honesty really is the best policy.)
You will need to be one-hundred percent sure that you get pre-approved (pre-pre approved, if you can) for a loan before you start placing offers on a housing unit. It is fairly common for sellers to reconsider an offer that does not have a preapproved mortgage.
5. How Much Can You Actually Afford On a Home?
There are some instances when a bank will give you a loan that exceeds the amount you actually want to pay for. While more money is tempting for anyone, you might end up with little money to cover other personal costs. (You know, like food and clothes that you would need to live in your home.)
To decide how much of a loan you would actually need, it is best to look at the total cost of your potential home. The monthly payment could fool you into thinking that it costs less than you think. You should also consider property taxes of your potential neighborhood, homeowners insurance, and how much it would cost to maintain the house. (Having a roof over your head is nice, and shall remain nice, if you can afford it.)
6. Who Can Help With The Buying Process For Your First Home?
The best person to help you in the buying process, and even finding your first home, is a real estate agent. They have more experience, since it is their job, and they will be able to determine the right home for you. Once you have chosen a home for you to purchase, real estate agents will stay by your side throughout the whole process; they could even negotiate the price with the seller.
However, most real estate agents require a commission for selling\buying a home for you. (Just a little something for their troubles.)
Steps to Take Before Buying Your First Home
It is understandable how stressful it must feel, the process of buying your first home. Of course, it takes more than just sheer will and determination to buy a home. You will need to be prepared and thorough in your planning. However, you should not be discouraged with all of it. There are things that you can do that will make the purchase process easier for you.
Make Sure to Have an Emergency Cushion
Owning a home is expensive; normally what a landlord would be responsible for, like a leak, plumbing issues, etc., is now up to you to cover. That is why you want to make sure that you get your potential new home inspected before moving in, but you also want to have enough money saved up, in case of an emergency.
A good rule of thumb is to have three to six months’ worth of expenses saved for an emergency. For example, if your monthly expenses are $2,000 then you would want to have $6,000 to $12,000 saved for your cushion. (Better safe than sorry is a cliché for a reason, and not being safe could cost you a lot of money.)
Get into Better Spending Habits
The best way to get into better spending habits is to have a budget plan that works for your finances. You want to be in a comfortable position before you begin spending on non-necessity items, like going out to eat, buying clothes, subscribing to memberships like a gym, etc. Your first goal is to handle your newly acquired bills and get settled into your new house! (Once you get settled in your new home, then you can shop until you drop. Just hold your horses and keep that wallet shut for a while.)
Erase Your Debt
Another reason to get into better spending habits is to work on paying down your debt. Student loan debt, credit card debt, etc., are all debts you want to clear. Once you pay these down you will have less financial stress to worry about! (Wouldn’t it be great if you could start fresh and not have debt racked up, while you are sitting on your porch swing in your new home?)
Create a Retirement Fund
Before moving into your first home, a good tip is to figure out how much money you plan to have for retirement. This will help you understand your decisions when buying a house, choosing a location, and preparing for the future. (The future is now and now is the future, my friend. The boy scouts have it right, always be prepared.)
The Bottom Line
The bottom line is that buying a home is stressful, and your first home is double the stress. However, it does not have to be stressful. As long as you plan ahead and prepare yourself correctly, then you will be just fine.
You will need to audit your finances, from your daily expenses to your savings account that you have had since you were 18 years old. This includes opening a retirement fund and keeping an emergency cushion for any hiccups you might face. Once you have your financial affairs organized, you should start thinking (logically) of the type of home you want and the basic specifications you will want it to have.
If you face any issues, you can always reach out to a real estate agent. Considered a godsend in the buying process, they will help you find the right home for you and assist you in the purchasing process. You should make sure that you have a preapproved mortgage loan before making an offer, since it looks unreliable to the seller otherwise.
Once you have a home that you can call your own, you will not have to worry about loud music or noisy neighbors. Now, you can yell at your neighbors and blast your music, since you would be your own landlord. (Just remember that you are not alone in your neighborhood, so maybe, keep it down just a little.)