12 Things First-time Home Buyers Must Know

    First-time home buyers tend to enter the market with expectations of a dreamy home search, only to get jostled into stressful bouts of bidding and mountains of paperwork. While the home search is most certainly an adventure to savor, there are many formalities you have to take care of in order for it to go smoothly. If you’re just starting the home search for the first time, here are 12 things you have to know.

    1. Do Your Own Market Research

    Before your home search even begins, have a look at local listings. Market research is something many people leave entirely to their realtor. But doing a little bit of your own research will help you know if now is really the right time to buy.

    Are there a lot of homes on the market? That gives you more options and a better chance to get a deal as a buyer. But if homes are selling fast with only a few popping up, that swings the market in favor of sellers. You’re likely to enter a bidding war in order to snag the right home.

    If you have time to wait, you might give the market a chance to cool down as you keep an eye on what’s available. On the other hand, if prices will likely keep going up, you might want to jump in before it’s too late. A little research will help you know where you stand.

    2. Set Realistic Expectations

    After you take a look at the local market, you need to take a closer look at your current finances. Many people think they can afford to purchase without an issue — until they examine their bank accounts.

    Say you make $3,000 a month and currently have $1,200 in set monthly expenses between your car payment, phone bill, and health insurance. That makes your debt-to-income (DTI) ratio 40%. Most lenders will not grant you a mortgage if this number exceeds 43%. The lower, the better.

    A high DTI, low savings, and a credit score not up to par can cause you to have a low approval amount. That might mean shopping for a smaller home or waiting until you can fix your finances and get approved for more.

    3. Save Up for a Down Payment

    One way that you can quickly qualify for a higher loan amount is to save more money. A conventional loan will generally require you to put 20% down at closing. For example, for a $300,000 home, this would be $60,000. Fortunately, other programs exist that might require as little as 0% down (like the USDA program).

    However, there are different income caps that come with such programs and also loan limits. This means you might not be able to borrow as much as you want. Plus, even if you’re eligible for one of these programs, a larger down payment will save you money in the long run.

    Fronting a substantial down payment can save you from paying private mortgage insurance (PMI) and even help you score a lower interest rate.

    4. Think About Closing Costs

    Many first-time home buyers are familiar with their need to save for a down payment, and that’s great. But there are some other costs that come with buying a home, too. Another major thing you’ll have to cover is the closing costs.

    In a slow market, you might be able to get the seller to cover your portion of the closing costs. Or, you might be able to get them to cover half of it. Generally, closing costs add up to about 6% of the home’s purchase price. On a $300,000 home, that means up to $18,000 out of your pocket.

    5. Get Pre-Qualified When You’re Ready

    Running the numbers is definitely one of the most stressful parts of buying a home. But once you’ve decided that you can afford to move forward with the home buying journey, it’s time to get pre-qualified.

    A pre-qualification letter from a bank will give you a solid idea of how much money the bank may be willing to lend you. And the bank might even quote you a potential interest rate.

    A pre-qualification is better than a pre-approval because the pre-qualification process actually looks at your credit, income, and debt. On the other hand, a pre-approval is no different from a credit card pre-approval offer you get in the mail. A pre-qualification is what real estate agents and sellers will take seriously.

    6. Make a Must-Have List

    First-time home buyers often start their home search with rose-colored glasses. They expect to find everything they’ve ever dreamed of waiting for them with a price tag that perfectly fits their budget. Unfortunately, that just doesn’t happen.

    That’s why it’s essential to go ahead and sort your “must-haves” from the “really want” factors. Having a spare room that could one day become a nursery may be a must-have. But having a kitchen island probably falls onto the want list.

    7. Focus on the “Can’t Change” Factors

    If you’re buying a home, you’re going to picture yourself in it for the long haul. So, don’t get blinded by beautiful landscaping and flashy updates. While they may be appealing to you, focus on the factors you can’t change.

    Location is a big one that every home buyer should keep at the front of their mind. Think about the home’s vicinity to work, schools, gyms, restaurants, stores, and all the other places you’ll be going to regularly or needing in the future.

    8. Compare Neighborhoods

    It’s easy to feel discouraged after you see a few homes that just don’t fit the image you have held for so long in your heart. But sometimes it just takes expanding your search in order to find something that works for you.

    Compromising on location, budget, and amenities is often a requirement of the home search. While it may not be your first choice, exploring a nearby neighborhood could help you find the home that will best work for your lifestyle.

    9. Know the Numbers Before Negotiating

    Once you do find that home that fits your vision, you have to act fast! These days, almost every neighborhood is a hot market. That means a house can sell out from under you in a matter of days, or even hours.

    Always ask your agent how long a house has been on the market and, if you like it, jump in with an offer. Just make sure that you know the numbers first. If you get stuck in a bidding war or a back-and-forth countering with the seller, you need to know your absolute limit.

    Before you even place a bid, ask yourself: How much am I willing (and able) to pay to get this home? Having this number in mind will allow you to stay focused and in budget amidst the heat of a fast negotiation.

    10. Make Your Offers Appealing to Sellers

    If a seller has more than one offer on the table, they could take up to a few days comparing them. But they aren’t just looking at price. While that’s a major factor, a seller is also going to be more motivated to select your offer if you have financing to back you.

    Especially in a hot market, most sellers will quickly disregard any offer from someone who can’t prove their purchasing ability and seriousness with a pre-qualification letter. Beyond that, you should also consider putting down earnest money. This is a check included with your offer that will go into escrow.

    The amount you put down in earnest money is up to you, but putting down a good sum shows you’re ready to move forward. It gives the seller more peace of mind. That’s because their worst dream is accepting an offer and then getting tied up for weeks in the closing process only to have a buyer’s financing fall through, meaning they have to list the home again and find a new buyer.

    11. Consider Your Contingencies

    As a buyer, you have the right to make your offer contingent on a number of conditions. For instance, most buyers will offer a price to purchase the home “contingent on inspection.”

    This means you have to send a professional home inspector in prior to purchase. And if the results come back with issues (big or small), you have the right to pull your offer completely or submit a counter-offer. This contingency is a major one that could save you from expensive and even dangerous problems. Some of these include leaks, mold, and serious foundation issues.

    Always ask your agent if they can help you to include the right contingencies. But consider your right to an inspection carefully and don’t be so quick to give it up.

    12. Know When to Fire Your Real Estate Agent

    All of this advice gives you a good glimpse into the legwork that accompanies the home search. From a ridiculous amount of paperwork to seemingly endless walk-throughs, open houses, and counter-offers, it’s essential that you have an experienced and friendly agent by your side to lead you through it all.

    As a buyer, you are not obligated to stick with a real estate agent who isn’t listening to your needs. You deserve one who is kind, willing to listen, and able to guide you through the ups-and-downs of this fun (and frustrating) process. If you’re in search of an agent just like that, reach out to Peak Properties Group. We serve the Denver Metro, Colorado Springs, and Northern Colorado areas.

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