15 Important Tips For First-Time Home Buyers

First-time homebuyers face a lot of challenges. Buying a home for the first time is an exciting opportunity that truly only comes once. As a result, first-timers often craft a rosy image of the real estate marketplace and the process of purchasing a home. Sometimes, everything falls into place, and this image becomes reality. However, purchasing real estate is fraught with difficulties and convoluted points that must be considered. First-time homebuyers enter into a cutthroat marketplace that can be difficult to navigate, even for seasoned real estate investors.

However, with a great strategy for success buying your first home doesn't have to be a monumental challenge or a heartache. With smart budgeting practices in place, and a knowledge of how the marketplace operates you can make the real estate space work for you and get the most out of this first home-buying experience. With these 15 tips in mind, taking advantage of all that the property market has to offer is actually far simpler than you might expect.

Your credit score is another important feature in getting a great deal on your new home. Credit scores are a complex calculation of your reliability as a borrower. The higher your score, the more confidence a lender will have in your ability to repay your debts. As a result, a great score translates into a better deal on your mortgage rate, and potentially a lighter down payment requirement, too. Anyone in the market (or hoping to be in the market soon) for a new home knows that balancing savings with credit card repayments is a challenging task. But paying off existing debts is the fastest way to improve your credit score, so this needs to be made a priority as you prepare to transition into the life of a homeowner. This is another reason to start saving and planning for the home-buying experience far in advance.

As well, if you pay off a significant chunk of existing debt before taking out a new mortgage, you will be able to enjoy a far greater cash flow balance when the new loan is made available to you. Paying off existing credit card debts, student loans, medical bills, and other forms of financing at the same time as taking out a new mortgage can be a harrowing task. So, improving your credit score is not only an endeavor in reducing interest rates and improving your borrowing capacity, but also one of intelligent cash flow management.

As you continue through the savings and preparations process, it's important to think about how much you can afford to spend on a home. This question presents itself through a couple of different veins. First of all, you'll need to think about your down payment. Every home will require different kinds of financial calculations for buyers, but this requirement acts as a good baseline for a first-timer weighing up their options in the marketplace.

The down payment and other associated costs upon closing are only one part of the budgetary calculation. Alongside this initial expense, you will have to pay the mortgage every single month, which is an ongoing expense that forms an important part of your budget for many years to come. Business Insider suggests budgeting a maximum of 28% of your gross income toward monthly housing expenses. Your monthly mortgage payment is influenced directly by the amount of money borrowed to purchase the home. So, in addition to understanding your down payment obligation, you'll need to consider how much you can afford to spend on a mortgage payment every month. Renters already make this calculation when deciding where to live, but owning your own home brings about more unique expenses than a simple rent payment. You'll also have property taxes, homeowners insurance, and possibly HOA fees to take into account.

Down payment options have become more widely available over the last number of years. In the past, a 20% down payment was the standard across all mortgage lenders. Yet these days, the average home buyer puts down a down payment of around just 6% (via U.S. Bank). A smaller down payment can be a great asset for someone buying with a small upfront budget. The less you spend upfront, the smaller your initial savings need will be, naturally. 

Yet, a larger down payment gives you greater equity in the property and will elicit less in repayment over the long term. As well, a down payment smaller than 20% will require the addition of private mortgage insurance. PMI is an insurance product that protects the lender and does nothing for the borrower. Once your equity ratio rises above 20%, you can eliminate the PMI payments tacked onto your mortgage bill every month, and so this tradeoff between a smaller down payment and a smaller monthly contribution is something that every borrower will need to evaluate for themselves.

There is truly no right answer when it comes to the down payment amount that you should pay when buying a home. This is because circumstances will be unique for everyone approaching the market for the first time. Taking time to think through the benefits of a smaller down payment weighed against the benefits of perhaps an extra year of savings to eliminate PMI is crucial.

It is highly beneficial to visit neighborhoods, towns, and cities that you are considering moving to. The more time you can spend in an area, the better understanding you will have of its nuances and local quirks. It's often a good idea to eat at restaurants and walk around the roadways in these locations. This allows you to interact with local businesses and people on a direct level, giving you greater insight into the norms and potential benefits or limitations of the community.

A great realtor can help you understand these features, but there is no substitute for experiencing the environment of a place for yourself. There's just something about hands-on learning that can't be accounted for in a conversation or report made about a property or community. It's also for this reason that many buyers attend a plethora of open houses in the lead-up to making an offer on the property they want to buy.

Of course, it isn't always feasible to visit a new community. You might be moving across the country for work, or be limited in your budget or mobility, leading to minimized travel opportunities. In this instance, it's best to speak with as many people as you can who possess this first-hand knowledge of the area, and rely on the expertise of a highly professional real estate agent for customized knowledge of the community.

Mortgage pre-approval is an important step in the process of putting in an offer on any home. A pre-approval letter shows sellers that you are serious about purchasing the property, and aren't just browsing for homes out of your price range. Applying for mortgage pre-approval will give you a firm budgetary understanding that shores up any doubts that you may have had when establishing your preliminary budget for the purchase of your new home.

A mortgage pre-approval letter states specifically that you have been vetted by a mortgage lender and are in principle, approved for a certain amount towards the purchase of a new home. This document also contains information about your perspective interest rate and other pertinent details. At a base level, a mortgage pre-approval letter shows real estate agents and sellers that you are a serious buyer who is willing and able to purchase a home.

It's important to time the application for mortgage pre-approval correctly, though. This step can cause a hard pull on your credit report, potentially altering your credit score in the process. Therefore, you should not do this before you are certain that you're ready to pull the trigger on the right home. A mortgage pre-approval letter is typically valid for three months, and if you don't make a move on a property in this time you'll need to apply for an extension or new pre-approval document.

Once the home inspection comes back, you will be armed with nuanced information about the property and might learn a thing or two that wasn't already apparent. With all this information in mind, you might consider countering your initial offer in light of potential renovation or repair needs that may come up. No property is perfect, so leveraging issues with the home's condition can help you save on the overall expense.

You may be able to take advantage of these issues as part of the overall transaction costs. With your inspection results in mind, you may be able to leverage a seller's position into splitting or taking sole responsibility for certain filing fees or transaction costs. You may also take a more direct approach and ask for a reduction from the initial asking price. Negotiation is constantly in play from the time you first approach the property and seller, to the moment that you close the deal and begin the process of the financial transaction. Taking every opportunity to sweeten the pot for yourself is an important lesson that seasoned homebuyers learn, but that first-timers often fail to incorporate into their approach.

Furniture is a typical consideration when moving from one home to another, but it becomes even more important when moving into your first home. Many renters rely on furnished listings to provide the foundation of their living space. Other renters buy furniture to outfit their more limited space. Either way, your first home is likely going to be larger than the rented unit you're moving out of. This means you may need to replace or add to your existing catalog of home furnishings. In addition, decorations and personalization options come in to play more dramatically when thinking about a property that you own rather than one you rent.

One other consideration involves renovations and updates. Some homes may be sold without substantial modernization, leaving new homeowners to quickly work to incorporate home improvement projects into the footprint of the property. This can raise the budget substantially as well, so thinking about any potential renovations that might be necessary to make the home feel comfortable can guide your budgetary math and potential offer on any given property.