Being a first time homebuyer is stressful.
There are so many things to keep track of, not to mention the fact that you're making the biggest purchase of your life. You have every right to feel a little overwhelmed!
While helping clients buy homes in Newport Beach, North Tustin, Irvine, and Huntington Beach we get a lot of questions. There's a lot of common wisdom out there on what you should do when looking to buy your first home, but I wanted to get a couple of different perspectives on the topic.
So I reached out to 31 of the best real estate and personal finance experts I could find and asked them to answer 1 question for you:
What is your #1 tip for first time homebuyers?
We got a lot of great answers that we're excited to share with you today. So without further ado, here are expert tips for buying your first home:
Pretend you're buying an investment property
"If there is any chance you won't be staying in the property for at last five years, pretend you are buying an investment property. In other words, if you buy a home and then move next year, chances are you will lose a lot of money due to the high costs involved in selling a home.
However, if you pretend that you are buying an investment, something you can rent out, and you run the numbers to make sure it works as an investment property in a worst case scenario, you can always move out and hang onto the property, allowing your new tenants to pay down your mortgage while you move onto a new home!"
Get an agent that wants to win
"You need an agent that is going to WIN a deal for you. In today's competitive seller's market, it's not just nice, it's absolutely IMPERATIVE to have an experienced local agent who has strong relationships with listing agents, and who knows how to ask the right questions and put together an offer package that the sellers cannot refuse. It's not just about writing an offer with the highest purchase price -- it's about putting together a winning deal -- and most agents do not know how to make this happen."
Do your research
"My best overall piece of advice for first time homebuyers is to do your research. There are many facets involved in home ownership and doing your homework can result in you saving as much money as you can and finding the right home for you.
To begin with, investigate all of the different homes available in the area where you want to live. Use the website Zillow for help.
Make a list of the necessities you require and don't vary from that. If you need a home with a full bathroom upstairs or a built-in porch, as two brief examples, keep that in mind as you search for houses.
Make sure you get pre-approved for your home loan so you don't make the mistake of trying to purchase a larger home than you can afford.
Research mortgage professionals – closing costs and interest rates do vary.
Homeowners insurance is another aspect worthy of your time. You should get quotes from at least three providers before making the best choice.
If you're relocating, take the same approach with moving companies. You don't necessarily want to go with the lowest bid – be sure you understand what the business will and won't do concerning your move.
Buying your first home is a big financial move, and therefore you should treat it as such. When you do, you're sure to come out better in the end both financially and with the property you end up owning."
Get your finances in order
“Before a first time buyer even considers looking at a home they should get their financial house in order including going through their credit report. What many buyers do not realize is there can be mistakes in the report that can seriously change their credit score and therefore their ability to get the lowest rates possible.
First time buyers should take the time to go through their report line by line and if an error is discovered get it corrected. This is especially important if your credit score is currently under 700. A higher credit score will lead to lower interest rates potentially saving a borrower tens of thousands of dollars over the life of the loan.”
Figure out how much you can afford
"My number one tip for first time home buyers is to figure out how much house you can afford yourself. Do not blindly trust the lender or real estate agent. Only the buy can know what they truly can afford and feel comfortable with.
Many buyers will buy the most expensive home they can afford, assuming if the lender says it is okay, they will be okay. Many people who max out their spending on a home, have no money left to save for investing or a rainy day. They live paycheck to paycheck with every penny earned going towards expenses.
If a home buyer wants to invest in real estate at some point, it will be very tough if they max out how much they can buy on their personal residence. A first time buyer needs to look at their expenses, how much they need to save each month, an emergency fund and then decide how much their house payment should be."
Get pre-approved before you start browsing online
"Get 100% pre-approved with a trusted local mortgage/lending expert PRIOR to browsing homes online. Most of my clients find they're either pleasantly surprised they can afford more, or a bit bummed they can't afford what they thought.
Bottom line, they know exactly their price range and can search (online and with me) accordingly, and in our market submitting an offer without being pre-approved is a waste of time. You'll get put at the bottom of the pile. So get pre-approved, know what you can afford, and go from there."
"As a first-time homebuyer, the most important step you can take is to get preapproved for a mortgage before you start your home search. A preapproval letter from your lender tells sellers and their agents that you’re a serious buyer who can stand behind an offer. A preapproval letter also will help you define your true home buying budget so you don’t get carried away looking at homes you can’t afford.
To get preapproved, a process that can take several days, you’ll need to discuss your financial history with a mortgage professional and get a clear picture of how much house you can afford. It’s worth the effort, because with a preapproval letter in your pocket, you’ll be a step ahead of competing buyers and a step closer to realizing your dream of homeownership."
Consider the extra cost of home ownership
"My number one tip for first time home buyers is this: You need to seriously consider all of the extra costs of owning a home. Don't forget to include insurance, property taxes, homeowners association dues, utility bills, maintenance, and repair - not to mention the time involved in managing all of this. Being a home owner is a major commitment and it takes a lot of work to ensure you're respecting the new asset that you own."
Find a trustworthy Realtor right away
"The hardest part of being a first-time homebuyer is not having experience with the process. For this reason, my #1 piece of advice is to find a trustworthy Realtor in the beginning of the home buying process. Don’t wait!
Some first-time buyers will consult with family members and friends, rather than real estate professionals. They can may intimidated by the process, which is understandable. First-time buyers really need to consult with people who buy and sell real estate every day though.
Real estate markets are constantly changing and evolving. That's why it’s important that you get accurate information from someone who is currently working the market that you’re interested in.
Once you have a trusted Realtor who you can connect with, you'll notice that you will feel more empowered when you enter the market to look for homes. It makes the process much more fun and rewarding."
Do the math, forward and backwards
"My #1 tip for first time homebuyers is to do the math forward and backwards. Create three different scenarios about your income and your future: bad, realistic, blue sky. Then run the numbers to see what you would do in case you lost your job, got a job offer out of state, or experience a 30% decline in your property.
If you can comfortable survive the bad scenario for at least three years, you are probably going to be fine because real estate moves in cycles. The previous downturn was horrendous, and it lasted only for about three years until housing prices, employment, and the economy stabilized. If you can get through the worst, real estate could turn out to be a great asset over the long run."
Shop location first, home second
This is your first house, it’s imperative you start investing in real estate on the right note or it could set you back for a long time.Buy a home in a great location, with a high floor.
What I mean buy a great location is one that is desirable thanks to the infrastructure, growth, economy, schools, transportation and amenities. A ‘high floor’ means both the house itself and the neighborhood doesn’t have room to move down because it’s already at the bottom.
For instance, if you buy the least expensive home in the neighborhood you are buying a house with a ‘high floor.’ This is thanks to the surrounding homes which help to improve the value of yours.
If you make a great investment on your first home, it gives you incredible leverage when it comes time to sell, or even if you want to refinance so you can buy some income properties to hold on to.
Find ways to pay down your mortgage down early
Other than the down payment, there are some ways to knock years off your mortgage in the very beginning. Making your first payment as soon as the loan closes, instead of waiting until the next month when the first payment is usually due, will take months off your mortgage.
This happens because it will be a principle-only payment that was not required, but you were already planning to start making the payments, so why not? If you don't have the money to afford this payment, you need to go back to the part about being able to afford to buy.
Paying extra matters more in the beginning years of your loan, when most of your regular payment is interest. So those are the years you'll want to spend working second jobs to put as much as you can towards your loan. Make sure you understand amortization before you get a mortgage.
One more thing: Get a 15 year loan...20 at most. If you need a longer mortgage to afford the payment, you're buying too much house.
Just remember, the reason you're doing all of this is to enjoy your home with your family. Make sure it will be an enjoyable experience financially, or you will grow to hate your house, which completely defeats the purpose of buying it in the first place.
Happy house hunting! That's my favorite part of the process.
Save up for a big down payment
"Before purchasing a home, make sure you are able to put a minimum of 10-20% down. The requirement varies by lender, but most require 10-20% as a downpayment to avoid having private mortgage insurance (PMI). In doing this, you can avoid the unnecessary monthly PMI expense and reduce your monthly payment. PMI is an unnecessary and costly add-on that should be avoided when possible."
"Make sure you save up for as big of a downpayment as possible. If you don't reach 20% equity, chances are that you'll be subject to private mortgage insurance, which can be a big waste of money."
Do your homework
"My biggest advice is to do your homework: ask friends and family for their advice, research questions to ask your broker, inspector, and realtor, and always save up more than you think you should!"
Don't do what other first time homebuyers are doing
"My #1 tip for first time home buyers is simple ... don't do what other first time buyers are doing!
Most home buyers like to gather a little information and awareness online before going out to look at homes offline, and this is wise.
But the step from gathering information to looking at homes offline comes with great peril to the ill-prepared consumer.
Typically, a first timer calls on a listing and then ends up randomly working with the agent that answers the call. Do you really want to trust a several-hundred-thousand dollar purchase to 'whomever answers your call?'
The prudent first time home buyer will realize that she or he will be working with a real estate agent, and the choice of the agent should not be left to chance. This buyer will interview agents for the job of helping them buy their home and will only move forward when they have selected a highly trained real estate buyer's agent that they know they can trust.
My tip is simple, hire a well-educated, well-trained buyer's agent before you look at any homes offline, and you will end up with the right home at the right price."
Don't skip the inspection
"I'd say the best tip is not to skip the inspection. An inspection is a good way to give your house a once-over before you buy to make sure there are no major problems that you are unaware of. This can potentially save you thousands of dollars when you buy a house."
Interview at least 3 agents
"Make sure to interview at least 3 agents, and don't just hire your friend because you went to high school with them."
Have a discerning eye
"When you're considering any new home for yourself, take special care to have a discerning eye. Even if you love what you see at first glance, allow yourself the time to see the good, bad and ugly of the house in question. If you find that any aspects of the property seem annoying, irritating or inconvenient (e.g. - bad location, poor layout, structural issues, etc.), realize that these problems will NOT go away with time.
If anything... these issues will continue to irritate and annoy as time goes on. There is no perfect property and every house has its problems, so with this in mind - make sure that whatever issues come with the house you decide to purchase, they are issues you are happy to tolerate."
Choose your neighborhood wisely
"The most common mistake I see first-time buyers make is to buy in the wrong neighborhood. Granted, we all buy where we can afford, but it's still important to really consider the entire neighborhood instead of just the house. After all, buying a house is sort of like a marriage. You might get a spouse, but you also get the family.The same is true with buying a house because you get the neighborhood too.
In short, do your homework and be sure you are comfortable with what the neighborhood has to offer in terms of the school district, crime rates, parks, recreation, etc... so you know what you are getting yourself into."
Spend a lot
"Spend a lot. And I'm saying that as someone who's pretty frugal. Reason being, you spend so many hours in your home - it's important that it's a pleasant environment. Also, the value of the home will likely increase over the years. So while you probably won't get rich because you bought the property - it's unlikely you'll lose money on it.
You can't say the same about most sports cars, clothing, or anything else you could spend a lot on. So if you feel like treating yourself, buying an expensive home is a pretty great way to do it."
Find an experienced agent
"Find an experienced and well-reviewed agent and listen to his or her advice. Experienced agents have worked through the various market cycles (both buyer’s markets and seller’s markets) and know first-hand the best strategies to use for achieving your goal."
"I think the best thing a first time buyer can do is get with an experienced and responsive agent to help them with their purchase. There is a lot of data available online, but nothing can replace an experienced professional on your side helping make sense of it all. Your agent should do a lot more than just show you houses.
Your agent should be able to recommend a good lender to help with your financing. Your agent can also help answer questions regarding inspections, appraisals, surveys and title. After the sale, your agent should still be a resource when questions come up about your new home.
I highlight 'experience', because nationally, about 1/4 of all Realtors have been in the business for two years or less. I make a point about 'responsiveness', because that is the number one complaint I hear from people about their last agent."
Put a plan in place
"My advice is simple: failure to plan is planning to fail!
The first step is planning how you will pay for the home. This is includes not just the mortgage but the insurance, taxes, upkeep and improvements, etc.
When I bought my current home, I went from renting to buying. I tripled my square footage while cutting my monthly housing payment substantially. However, once you figure in upkeep, insurance, taxes, etc I am paying more per month.
The funny thing is several lenders were willing to loan me much more than I should OR could really and truly afford!
Remember to set your max price by looking at your monthly payment. Select a monthly payment that is comfortable for you and remember to allow for all the extras I mentioned earlier!
Hope for the best but plan for the worst. It is better to spend less and be comfortable than to struggle every month!"
Find professionals you feel comfortable with
"I would say the number one tip for first time homebuyers is finding & using professionals they trust and feel comfortable with. A great Realtor & great Lender can may all the difference. Our job is to help guide new homebuyers through the process smoothly.
First Time home buyers need to be able to ask questions and have them answered throughly and in a language they can understand. They must have confidence that the folks they choose have their best interests at heart and are looking out for them.
The main issue is that a lot of home buyers don't know what they don't know... Don't know what to ask, no matter how much you google it. The questions also vary by geography. What may be a big deal in California is not in Georgia. The bottom line is consult with the right folks and they can help over obstacles and get everyone to the finish line. Their dream home."
Use HUD to find deeply discounted houses
"My #1 tips for first time home buyers is from the perspective of getting a great deal. We buy houses in San Antonio, TX for a living and when I started looking for my first house to own and live in, I knew I wanted a great deal.
I'd heard about HUD foreclosures and how they need to sell the houses fast. HUD (the US Department of Housing and Urban Development), is charged with selling houses that are foreclosed upon when someone with an FHA insured loan defaults.
The beautiful thing here is that HUD wants to sell these houses quickly so that they aren't costing the government a lot of money. In order to do this, they price them very well. Seriously, you can get a heck of a deal. You might be concerned that real estate investors know about this and are able to move faster than you an get all of the great house deals.
This leads us to the second most beautiful thing about this tip. HUD wants to give dibs to homeowners and community workers like teachers. They devised an system where by most homes they offer for sale can only be sold for the first 10 days (usually) to people who are going to live in them.
This gives you a huge advantage as a first time home buyer. You can buy a house quickly at a deep discount before any investors have a chance to make an offer on it. Most of these houses need some repairs so you might need to be a little handy. You can find some that only need paint and carpet type repairs.
This is exactly how we bought our first house to live in. We had to make some repairs but it was worth it to be have a great deal of equity already built into the home from the get go.
You can view the houses HUD has for sale on their website: HudHomeStore.com"
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."
Know your terms
"Understand how your TERMS can be as important as price in the eyes of the sellers. Know the sellers' situation, their needs, their next move, and try to accommodate them if you can. And be realistic about how quickly you can take care of your contingencies – quicker is more attractive to sellers. Improve your offer by promising to work quicker."
Buy a place you can grow into
“Always buy a home/condo larger than you initially think you need. It is inevitable that life changes (jobs, relationships, family additions) and it is MUCH easier to adjust if you have a little extra space.”
Make sure that it's the right move for you
"My #1 tip is to ask yourself why you're buying a home. Do you genuinely want to own your own home, irrespective of any financial considerations? Or are you buying because you believe it's the best financial decision?
If you're buying for the second reason, then I'd recommend that you pause for just 10 minutes and run the specifics of your situation through a financial calculator. Verify that buying is better than renting in your personal life, based on your unique circumstances. Here's an article that explains this in detail.
And if you run the numbers and determine that owning is the best move -- fantastic. You'll enjoy your home more now with this tested, confirmed peace-of-mind."
"My tip for first time home buyers is to be realistic. Start by finding a reputable lender. See how much home you qualify for.
Once you know how much mortgage you qualify for, be realistic about the type of home you can afford. You may have to accept smaller and with fewer bells and whistles than you’ve seen on HGTV. Even if you can’t afford your dream home yet, the first home you buy is a step in that direction."
Be patient and flexible
"My top tip in today's market is to practice patience and flexibility. Buying a home is a process. A lot of emotions come into play, and it can be a roller coaster.
Just some pointers I mention to my first time buyers:
- It's an exciting and scary time buying your first home. Be prepared to look at many properties, because finding a home doesn't happen over night. OR it can happen on your very first appointment!
- Open yourself up to neighborhoods that may not have been your first choice.
- Weigh what is really important for you; 'must haves' against 'what would be nice to have'.
- A home that needs a little work just might be your perfect home. New is not always better.
- Stay within budget. Buy within your means; don't get into a house that is too much for you to handle on a monthly basis
- And most importantly: Using an experienced agent will save you your sanity!!"
Hire a Real Estate Agent who can best represent YOU
There are so many tips that I could provide to any first time home Buyer, yet this probably the most important.
Being a first time Buyer means you’ll have a lot of questions and you want to ensure that your questions are answered. There are questions that you don’t even know you should be asking and this is where a skilled Real Estate Agent's value will come into play. A Real Estate Agent knows what to look for, what to anticipate, how to negotiate and how to get you to close on your first new home.
How can you find this skilled Real Estate Agent you’re likely wondering? Start by searching online over the internet, just like you’ve been searching for homes well in advance of getting ready to buy, I’m sure.
Look in the local area of where you’d like to live. When you search for an Agent in the city of your interest, you should find them all over the internet. This lets you know that they know a thing or two about the neighborhood area you’re considering. Then dig into what you find. Click through to their pages you discover over the internet, that should take you to their website. Read it thoroughly. What does it say? Does it sound like they’re in the top of their Real Estate profession? Talk to them. Let them answer your questions and see how they guide you on one of the most important purchases you’ve probably ever made.
For example, they’ll be able to advise you on making your first offer and so much more. This all should result in you knowing that this is your 'person', the Real Estate Agent who will guide you in your first time home purchase.