Buying your first house is a huge deal! And the worst thing you can do is rush into that process without having the proper knowledge (or enough money).
It’s been a year since we bought our first house and let me tell you it’s been a huge responsibility.
Thankfully we haven’t major problems but our thermostat stopped working and our shower door did break which were expenses we never had to budget for as renters.
If you’re here, you’re probably thinking about buying a house for the first time.
Chances are you’re at least a little nervous about the first-time home-buying process itself, picking the right house, whether you’re financially ready, or all the above.
This guide will help you make solid choices throughout the first-time home-buying process.
Get Out Of Consumer Debt And Stay Out
Before you even start thinking of buying your first house, you should be completely debt-free.
Not only can this look great to potential lenders, but a healthy cashflow will give you peace of mind too.
When our thermostat broke unexpectedly, I was able to get it replaced without even thinking about the cost. Why? Because I didn’t owe a million people money.
Also, it’s important to not take on any more debt while you’re getting yourself ready to buy a house. That means no new furniture, new cars, televisions, or anything else on credit. Cash-only.
Not only will it keep your loan from being denied, but it’s good to live that way once you’ve bought your new home as well.
Save 6 Months Of Necessary Expenses
I’m sure even as a renter you’ve seen this first hand.
As a homeowner, those maintenance costs get passed on to you.
So when your A/C stops working in the middle of the summer, it comes out of your account.
Long gone are the days of calling the maintenance guys at your apartment when your sink won’t drain. Now you get to call a plumber and pay the bill yourself.
That’s why you need to have 6 months of expenses saved in an online savings account before you even start dreaming of buying your first house.
You also need to be prepared to cover your new mortgage in case of other emergencies like job loss.
Know Exactly What You Can Afford
While you’re planning on buying your first house, make sure you know exactly what you can afford.
You’ll know this by living on a budget every month.
The bank is not your friend. Their responsibility is to make money.
With that said, just because you’re approved for an amount doesn’t mean you can actually afford that amount.
We were actually approved for well over $450,000 when we were buying our first house.
Looking at our budget, we knew that if we bought at that amount, we would be stuck paying on this house for at least 30 years.
And not only that, our ability to reach our other goals would be thrown out the window.
Knowing that, we decided to not even look at homes outside of our budget which was actually $200,000.
Because of that, we have a house we not only love but will be able to pay off in less than 10 years.
Also, if one of us were to lose our job, we could still make the payment each month with no problem.
That’s owning your home and not letting it own you.
Save Your Down Payment
You need to save at least 20% of the total purchase price of your home for a down payment.
I know you may have heard you can get in for 3%, but buying your first house with so little down is usually not the best idea.
It takes longer this way, but you’ll also be able to avoid PMI (private mortgage insurance).
Basically, PMI is a fee you pay every month just because you didn’t put 20% down.
You’ll pay this fee which is usually 1% of the purchase price until you have 20% equity in your home.
That means if your first house costs $200,000 and you don’t save up $40,000 to put down, you’ll pay $2,000 per year in PMI which breaks down $167 per month.
Putting down just 3% on your first house then taking 6-7 years to reach that 20% threshold could cost you $12-14,000 on a $200,000 home.
That’s a lot of money in fees you could save just by…well…saving. Make sure you’re living on a budget so that you can save more efficiently.
Either stay patient or look at lower priced homes.
Prepare For Closing Costs
One of the most overlooked expenses when buying your first house are the closing costs which are usually between 2-5% of your loan amount.
This is another reason why it’s important to shop around for lenders as some charge less for certain fees.
You need to have this saved in addition to the 20% you put down.
Some of the closing costs are:
- An Appraisal
- A Home inspection
- Copy of your credit report
- Homeowner’s insurance
Again, the costs could be between 2-5%, so, for a $200,000 house, be prepared for between $4,000 and $10,000 in addition to your down payment.
NerdWallet has a cool calculator that can help you estimate closing costs.
One of the things that helped us buy the house we wanted was having a pre-approval letter.
Basically a lender will look deeply into your financial situation and determine the amount and the terms that they’ll lend to you.
This helps you come across as a more serious buyer and could be a major win while dealing with sellers looking to sell quickly.
I recommend this step once you have cleared your debt and saved up enough for the down payment.
List Your Non-Negotiables
When buying your first house, you’ll almost certainly have a few must-haves.
I do recommend keeping this list relatively low and focused on the essentials like total cost, number of bedrooms, school districts, proximity to work, etc.
It’s totally cool to have some “nice-to-haves” on your list, but always prioritize the non-negotiables and share these with your realtor.
It doesn’t make sense to buy the house with the pool and amenities you want that doesn’t have enough space for your family or puts your kids in a terrible school district.
Hire A Buyer’s Agent
It’s important to hire someone you get along well with, that knows the market well, and has enough experience to help you get the best deal possible.
With that said, you should interview at least 3-5 real estate agents before deciding on one.
Too many times people hire family members or friends and that’s not always the best way to go.
Buying your first house just may be the biggest financial decision you’ve made in your life to this point so make sure your realtor is highly skilled with a good track record.
Anyone that doesn’t understand that may not have your best interest at heart anyway.
Don’t fall into the trap of buying the house that only fits your needs today.
An example of that would be knowing you want multiple children in the future but buying a house that wouldn’t allow you to grow into it due to limited space.
Or even failing to consider school districts if you plan to have children.
Don’t let your future stretch your budget too far, but you definitely want to be mindful.
Find a Few Homes You Like And Visit Them
Our realtor helped us locate 5 homes that fit our criteria. From there, we ranked them based on the listing.
Surprisingly, our lowest-ranked home from photos ended up being the home we loved the most when we visited them.
The pictures just did not do the place justice at all and that happens.
It’s important to get out and see the homes and take notes about the things you love, like, and dislike about each.
If neighbors happen to be outside, ask them a few questions about the neighborhood.
Pay attention to things like barking dogs or appliances that may need to be replaced in the near future.
Buying your first house without doing your due diligence could cost you a lot of money and your sanity.
Attend Open Houses
Once we keyed in on the area we wanted to live in, we looked around for open houses and attended a few.
The selling agents of the house we bought ended up hosting one and we got to meet them.
I asked them how many offers they had and they actually shared the info with us which helped us create a a compelling offer ourselves.
Open houses also help you learn the neighborhood a little better and will create more opportunities to speak with your potential neighbors.
Stick To Your Budget
It’s so easy to let your lender or even your realtor get you out of your budget.
But you have to remember, buying your first house just might be the largest purchase you ever make.
Buying too much house could set you back financially for decades.
You are the one responsible for paying the mortgage every month, so make sure to get one you can afford regardless of what any professional tries to tell you.
A rule of thumb is to keep your total housing expenses at or below 25% of your monthly take-home pay. Anything more than that usually puts you in a stressful situation.
Make A Reasonable Offer
This is where the experience and expertise of a good, quality real estate agent comes into play.
Because you’re pre-approved already, you’re ready to make an offer on your favorite house.
If you’re in a really hot market, you may end up in a bidding war like we did. Our house had 3 other offers and we all had to submit a final, second offer as well.
In that case, our agent helped us come up with a number that was still within our budget, but, also one that wasn’t too high based on previous sell prices in the area.
It also helped to include a personalized letter with our offer as well stating why we thought the home was perfect for our growing family.
One of the biggest mistakes you can make when buying your first home is going through the process and not attempting to negotiate everything.
Our inspection revealed a few minor maintenance things that needed to be taken care of. We asked the seller to cover them and got it.
They also sold us their refrigerator for a huge discount and covered a home warranty for us as well.
We had three lenders competing for our business and were able to save a lot on closing costs by communicating and asking questions of each one based on the others.
If you’re in a strong buyer’s market, you may even be able to get the seller to cover some closing costs.
The answer is always no if you never ask.
Don’t Skip The Inspection
Once your offer is accepted, you should work to secure a home inspection.
It’s important that you take time to learn what the inspector can and can’t test for beforehand so make sure you ask.
Also, do your best to attend so you can ask questions and ensure the inspector has access to all areas necessary.
At the end of the day, the inspector won’t usually tell you whether or not to buy a house, but don’t be afraid to ask him or her to take a look at certain things that may concern you.
Get Adequate Insurance
Your lender will require you to have a homeowners insurance policy before the closing date.
Again, make sure you ask questions and learn what is and isn’t covered and shop around for the best rates.
I recommend going through an insurance broker that can get you a few quotes to compare at one time.
Finally, just know some natural disasters like flooding aren’t covered in your original homeowners policy. Be sure add these additional plans if you’re in an area that’s affected every so often.
Buying Your First House
Now that you’ve done all of the above, you’ve made it to closing day.
You’re officially buying your first home!
Make sure you read through the documents and ask your realtor to explain anything you don’t understand…even if they’ve explained it before.
Again, this just might be the biggest financial decision of your life and you’re responsible for everything you sign.
Are you getting ready to buy your first home?
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