First Time Home Buyer Tips and Guide

by David Ning · 14 comments

First time home buyers risk the highest percentage of their assets in the typical purchase. Yet, they know the least about the whole process. If this is you, read on.

Buying your first home can seem daunting at first. After all, you are most likely putting down almost all your savings as down payment and also trying to obtain a very large sized loan to boot. I know that being in serious debt can seem frustrating, but home ownership can have its rewards too. The stability, the lack of land lord and the peace of mind can all benefit you and your family in the long run. If you are contemplating on such a large purchase, here are some timeless first time home buyer tips to help you get started.

Buy When It Makes Sense

With real estate, timing can make a big difference. Yet for most people, it’s not possible to pick the absolute bottom. Like any product where the price is affected by supply and demand, people who try to wait for the absolute bottom usually end up missing it until months (if not years) after. The better approach is to buy only when you can afford it, because you don’t need to worry about the market once you are moved in. If you are very sensitive to the numbers, work out whether it makes more sense to rent instead. It’s straight forward to figure out whether it would cost less to rent a property that you are planning to buy. So you can move wait until it makes more sense mathematically to own.

Get Pre-approved for a Loan Before You Start Looking for a House

During the boom years, you can get a loan for any house you possibly want. These days, the lending standards are much tougher. For first time home buyers, this is actually good because it will limit you on the houses that you can buy. If you are serious and motivated to find a home, first get pre-approved from a lender. Doing so will give you an exact theoretical maximum amount you can offer on a home, which will help you narrow down your home choice considerably (a very good thing actually as there are a too many choices out there).

Consider a Shorter Term Loan

You see 30 year fixed loans as the golden standard in mortgages, but there are actually other, shorter term loan options as well. While the payments are higher, the interest is almost always smaller too. Think carefully about what is affordable to you, but opting for a 30 year, higher fixed interest rate that’s higher than a 15 year and moving in a few years as most first time home buyers do is throwing money away.

Work Out the Numbers Yourself

Every lender will give you different options. Discount points, loan rates, credits towards closing etc will all factor into which option works best for you. Most people just make a decision on the spot, but it’s much better to take all the options and work out the numbers yourself. There are tons of mortgage calculators available online, so do your homework and make the choice that best make sense for your situation.

Figure Out Your Needs and Wants

Once you have an idea of how much house you can (or want to) afford, it’s time to look at the options available. Go to Redfin.com and search for a house that fits your criteria, and make a list of your preferences. Note that the perfect home may not be possible based on your income and down payment this time around, but don’t worry because life will be very boring if you can meet all your hopes and dreams early on in life.

Be Patient

One thing to remember during this whole process is to be patient. From picking a lender to making offers on homes, the patient customer always comes out ahead. Don’t let your emotions and laziness cost you there. Home buying is a major purchase. Take your time.

Get a Competent Agent

Especially for a first time buyer, the whole process is very overwhelming. A competent agent can help answer all your questions as well as guide you through the whole process and give you advice on prices and things to ask the sellers for. Don’t make the mistake and believe that you can pocket part of the buyer agent commissions by not having one, as one mistake can cost you much much more money.

In Fact, Every Transaction Should Have Two Agents

It’s perfectly legal to have one agent represent both the seller and the buyer, but it’s highly undesirable. A seller’s agent will make the case that since realtors are usually local, they will try to look after the buyer’s interest more so than the seller’s interest since they are moving away. Sure, this sounds logical, but how would the seller feel if he knows the agent is helping the buyer as well? Negotiations is a compromise between two parties, and a less than enthused seller benefits no one.

Read and Re-Read Every Single Document That Comes Your Way

Every time you are buying a house, you are helping provide a living for many, many families. Housing is a huge industry with many small related businesses behind each transaction with everyone wanting to sell you more products. Read every document carefully and make sure you know exactly what you are signing before you commit to something that you didn’t know about.

Ask Every Question You can Think of to Everybody Involved

In fact, have a notebook with you and write them all down so you do not forget. The mortgage agent, realtor, fire insurance company, escrow company, and everyone involved are all collecting a fee for a decision that you are making. Ask them lots of questions, and make sure you bounce the same question off multiple people to get a true gauge of the whole situation. The more you know, the less risk you are potentially taking.

Make a List of Everything You’ve Agreed To

Make sure that you get everything in writing. If someone promised you something, ask that person to email it to you so it’s on record. Also, there are many things you will be signing in the whole home buying process. Make sure you keep a list so you know everything you’ve signed up for. One product the mortgage company will likely sell you is an insurance policy in case you lose your job. They will give it to you free for the first year, but unless you want pay for it to give yourself the peace of mind, remember to cancel this service before they start charging you for it.

Don’t be Afraid to Ask for What’s Fair

You may love a particular home, but don’t be afraid to negotiate. Chances are good that the agents, as well as the sellers will work something out to accommodate your needs. If it’s a legitimate request, remember to ask.

But Before You Ask

Always seek the advice of the agent before you tell them what you’d like to ask for. Most of the time, the agent will suggest requesting for things that you haven’t thought of. But if you tell them what you’d like first, it’s less likely that they will provide additional opinion. The other benefit is that her delivery in the negotiations will be much smoother since the request list was the agent’s idea in the first place, and requests will more likely be met.

Other Suggestions for the First Time Home Buyer

  • ARM loans – ARM stands for adjustable rate mortgages, and it can actually make sense for those who have irregular income. This is a topic that needs a much lengthier discussion, and is outside the scope of this article. However, definitely talk to your mortgage broker to hear what he/she has to say about it, and whether it make sense for you. Just don’t abuse this. Getting an ARM loan is not a way to qualify for a house you couldn’t afford.
  • Prepayment penalties – Make sure you ask whether your loan has a prepayment penalty. If it does, look elsewhere. Simple as that. You can double check your loan when you will receive the Truth in Lending Disclosure Statement. At the bottom of that page, make sure you see the words. PREPAYMENT: If you pay off your loan early, you will not have to pay a penalty.
  • Real estate as an investment – Most people over exaggerate how much real estate appreciates. Remember that every month you are living in your home, there are many expenses that go along with it. Buy your home because of the lifestyle, and you will be much happier than thinking about it as an investment.

Yours truly made an offer on a home that’s been accepted. Currently, we are waiting for the loan officer to call Emma’s employer to re-verify that she actually still has a job. Once that happens, we will remove our contingencies and wait till closing before moving in.

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{ 13 comments… read them below or add one }

Random Thoughts of a Jersey Mom March 29, 2010 at 7:56 am

This is a good list. A rule of thumb is to buy a house that is between 2 to 3 times your gross income. That way, you’ll have enough money left over from paying mortgages to save and invest for your future.

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Andy March 29, 2010 at 11:31 am

First time home buyers often don’t understand the amount of expenses they will incur after closing on their new purchase. Plan to have extra cash for basics like shelving, decorating items, new tools, for the home and yard. Also, you will no doubt be visiting the furniture stores.

I suggest that people carefully quiz their financial adviser and mortgage consultant to be sure they have ALL their monthly expenses clearly in mind before they commit to purchasing a home or condo. Its good to have an extra cushion in the bank as well.

Reply

Lakita (PFJourney) March 29, 2010 at 11:33 am

Great article. Patience goes a long way. I’m currently looking, but I don’t want to make a hasty decision driven by emotions or a potential tax credit.

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Cd Phi March 29, 2010 at 12:59 pm

Thanks for the layout. It is of utmost importance to get pre-approved for a loan because you could potentially waste all that time trying to find a home only to discover that you won’t be able to buy it.

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Coupon Code March 29, 2010 at 5:43 pm

One thing to keep in mind is furniture. If you’re like we were, we moved from a small apartment with all old college furniture to a big vacant house. When you have to now furnish a bunch of rooms, it gets expensive quick.

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Tracy March 30, 2010 at 4:08 pm

Great article. The point about getting pre-approved can’t be stressed enough. This way, at least you can figure out what type of home you should see before you are sucked into seeing all these nice houses and feeling bad because you can’t afford any of them.

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Townhomes Buyer March 31, 2010 at 6:22 am

The home ownership rate in the U.S. is nearly 69 percent — indicating that home ownership is within reach for more Americans than ever before. In fact, it can be as affordable as renting, and in some regions of the United States, it can be more affordable. The following are some of the advantages of owning a home rather than renting. You can build equity; this means your wealth will increase as you gain more home equity. You can gain tax advantages, because mortgage interest is tax deductible. A home provides a permanent place where your family can live and grow, and you can decorate or expand a house the way you like to create your dream home.

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PopCents March 31, 2010 at 11:59 am

Its also good to know what tax breaks you can get if you’re a first time home buyer. For example, California has extended at (very popular) $10,000 first time homebuyer tax credit until the end of April.

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CreditShout April 2, 2010 at 6:59 am

I was thinking about buying a house this year, but even with the Tax Credit I’m not sure that I would want to be tied down at such a young age or that it would even make sense financially. I think I’ll probably just stick with renting for now and hold off until I’m at least 25 and know that I’m going to stay in one place for awhile.

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Inadvertently Domesticated April 10, 2010 at 10:53 am

oh, i wish i had seen this article before i started the process of buying our house. i’m a first-time home buyer, too. but, thankfully, all went well. we actually just got the keys to the house yesterday. i’m so happy…

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listing home for sale by owner August 12, 2011 at 2:42 am

First time home buyers often don’t understand the amount of expenses they will incur after closing on their new purchase. Plan to have extra cash for basics like shelving, decorating items, new tools, for the home and yard. Also, you will no doubt be visiting the furniture stores. I suggest that people carefully quiz their financial adviser and mortgage consultant to be sure they have ALL their monthly expenses clearly in mind before they commit to purchasing a home or condo. Its good to have an extra cushion in the bank as well.

Reply

DPhahaha February 2, 2012 at 2:42 pm

Re-title this: Common Sense.

Main idea: It’s common sense people.

Reply

DPhahaha February 2, 2012 at 2:42 pm

Very helpful though :]

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