Being a first-time home buyer requires a good deal of financial planning. Before you go shopping for your dream house, consider these first-time home buyer tips.
1. Decide on a down payment
The industry standard is 20%, but first-time home buyers are sometimes only expected to provide as little as a 3-5% down payment for their first home purchase, depending on their lender, and what sort of home they intend to buy. What you pay upfront for a home can greatly reduce what you'll pay for your home in a long-run, so try to make the largest down payment that you can comfortably afford.
2. Don't forget about property taxes and homeowner's insurance when calculating your monthly mortgage payment
The real estate listing website Zillow has a special mortgage calculator that can provide you with an estimate for what you'll be on the hook for each month, after local property taxes and homeowner's insurance are added to your mortgage payment.
3. Don't forget about "earnest money", and closing costs
When you submit an offer on a home, it's common practice to include “earnest money” to show the buyer you're serious. The earnest money is held by your realtor (do not give it to the seller directly), and if your offer is accepted, this money will go towards your down payment. If the offer is rejected, or the purchase falls through, your earnest money is usually returned, minus a cancellation fee if you end up walking away from a deal. Unless the seller has agreed to pay closing costs, you'll need to be prepared to spend a few thousand dollars upon closing.
4. When shopping for a home, assess how it fits into your long-term plans
It's up to you to decide whether owning is smarter than renting at this point in your life. For example, do you plan to stay in the area you're currently in for more than two years? Are you looking at up and coming neighborhoods? Do you really have the time, money, and energy to invest into a fixer-upper? Are you planning on expanding your family any time in the near future? It's important to assess how a new home might fit into your plans in 5 or 10 years' time, and not just how it meets your needs today.
5. How could you improve the home's resale value?
Unless you only plan on making one home purchase in your lifetime, it's important to keep this in mind. First, assess what parts of the home could stand to be improved, and ask your real estate agent how such upgrades might affect the home's value. Bear in mind that there are caps on home values for certain areas and neighborhoods which will be hard to top, regardless of how upscale your upgrades are.