Fast Tips for First-Time Home Buyers | Real Estate

Buying your first home can be an exciting but daunting experience. This especially applies to today’s real estate market given that housing inventory is down and mortgage rates are elevated.

The more information you have about buying a home, the better position you’ll be in. Here are some tips to incorporate into your home search.

Mortgage preapproval isn’t the same thing as a full-fledged mortgage approval, but it will give you a sense of how much money you should be able to borrow for a home. And in a tight housing market, that’s an invaluable talking point, says Dottie Herman, vice chair at Douglas Elliman Real Estate.

“When you’re negotiating, you can tell the seller that you’re preapproved for this amount of mortgage,” she says. That could give you an advantage over competing buyers.

You don’t just want to rely on your preapproval to determine how much you should spend on a home. You should crunch your own numbers. “It’s not just a matter of what a bank will lend you,” says Herman. “It’s a matter of what you’re comfortable spending.”

Herman says that home prices correlate to school districts – the better the rankings, the higher prices are apt to be. That’s why, says Herman, you have to decide how important local schools are to you. “You might get less house in a school district that’s considered better,” she says.

Adding to your debt is the last thing you want to do when you’re about to apply for a mortgage, says Herman. So, avoid doing things like signing an auto loan while you’re house-hunting. The less debt you have, the more likely you are to qualify to borrow for a home.

Mortgage lenders like to see income stability, says Herman. Even if you’re leaving one job for another you can start right away, and at a comparable salary, it could compromise your mortgage closing. “It won’t look as good if you just left a job and are starting a new one,” Herman explains.

“Your credit score will impact your ability to get a mortgage, and it could impact your rate,” says Herman. You can generally access your credit score for free through your bank or credit card account. If the number isn’t favorable, aim to boost it before applying to borrow for a home.

Herman also says that sometimes credit reports can contain mistakes that result in a lower credit score. “Dispute that before you apply for a mortgage,” says Herman. “The better your credit is, the better the interest rate you’ll get.”

Closing long-standing credit card accounts could lower your credit score because the length of your credit history plays a role in calculating that number. You might think about shedding some credit cards before putting in a mortgage application is a good idea, but Herman warns that it could backfire.

Many mortgage lenders will accept less than 20% of your home’s purchase price at closing. But Herman says it’s a good idea to put down 20% to avoid private mortgage insurance, a costly premium designed to protect your lender if you fall behind on your payments.

Closing costs are the fees you’ll pay to finalize a mortgage, and Herman cautions that they have the potential to catch first-time homebuyers off guard. Closing costs are generally between 2% and 6% of your loan amount, says Herman, so it’s important to plan for them.

Some aspects of your closing costs may be negotiable, so it’s worth talking to your lender. But also, says Herman, you can try asking your seller to cover some of your closing costs.

Having your seller pay some of your closing costs will have more of an impact than lowering the price of your home by a few thousand dollars, Herman explains. That way, you don’t have to lay out as much money at closing, and you’re more liquid as you move into your home.

In Herman’s experience, “It’s pretty rare that you’re going to find the perfect house.” That’s why she says you must identify the features you absolutely need, then make a list of the items you’d like to have. That way, you know how to spot your deal-breakers.

Property taxes are a major expense homeowners must bear. Not only should you see what property taxes are associated with the home you’re interested in buying, you should also make sure the current property owner doesn’t have an exemption, says Herman.

“Sometimes people have exemptions that make their property taxes lower,” she says.

The property tax bill you start off with won’t necessarily be the one you pay over time. As your home value rises due to market conditions or improvements you make, you could end up owing more in property taxes. Try not to buy a home at the very top of your budget so you have the room to cover higher property taxes down the line.

You may be eager to buy a home that’s updated. But Herman says it’s important to make sure that the work was done by someone certified. You should also make sure that the previous owner secured permits for all major projects.

Many first-time homebuyers don’t factor in enough money for upkeep and then struggle after the fact. The tricky thing, though, says Herman, is that “it’s hard to follow a formula to budget for maintenance.” So, for starters, try not to buy a home that maxes out your budget. And also, plan to do some maintenance yourself to keep your costs manageable.

Herman says that one of the biggest mistakes a first-time buyer can make is purchasing a home that does not undergo a thorough inspection. Not only should you pay for an inspection, says Herman, you should attend that walk-through. “Go and see exactly what work your home is going to need,” she says.

In a housing market with low inventory, bidding wars can be common. Herman says that all bidding wars are different and there’s no single formula for handling them. However, she cautions that “sometimes you can get carried away with wanting to win.”

“If it’s a house you really want, consider paying a little more,” says Herman. But otherwise, you may want to just walk away.

The idea of buying a newly built home can be appealing. But Ivan Chorney, luxury real estate advisor at Compass and partner in the Ivan and Mike Team in Southeast Florida, says that a new construction home can be a mistake if you go about buying one the wrong way.

“Don’t buy new construction from a developer directly,” Chorney says. Instead, get an agent to negotiate on your behalf – ideally, one who knows builders in the area. And also, prepare for delays.

Chorney says that new builds are commonly delayed, sometimes by a year or more. Gear up for that and make sure you have alternate housing arrangements.

Chorney commonly sees new homebuyers get drawn to a house’s view. But, he says, “Your view can change over time as more construction gets approved.” So, if that’s your primary reason for buying a home, you may want to reconsider.