First-Time Homebuyer’s Guide (6 Stages to Get Right!)
Buying a house is a journey with stages and phases:
- Researching mortgage options.
- House hunting.
- Mortgage selection.
- House purchase.
- After the purchase.
Paying attention to tips for first-time house buyers at every stage of the process can help you avoid the pitfalls often met by first-timers.
Stage 1: Getting to Grips with Budgeting
Getting your foot on the first rung of the housing ladder is when you need to understand your budget for now and later when applying for finance.
#1 Know Your Income
It is surprising how many people don’t know how much they earn, but your regular income sets how much you can borrow.
Understand your income, how it splits between guaranteed earnings, optional bonuses, and overtime. Also, check how your income will rise over the years.
Do you have to negotiate, or do you get regular increments?
If you are self-employed, you need to understand how your income works and what evidence you must have to prove you are a reliable earner.
#2 Audit Your Expenses
The other side of the coin is where your money goes. You need enough income to meet your current and future commitments.
Part of your house buying journey includes amassing sufficient funds for a deposit and all other house-related expenditures.
You need to divert some of your spendings into saving to achieve your goals. Before you start saving for a new house, you must understand how, why and what you spend your money on currently.
#3 Organize Your Paperwork
House buying will be more straightforward if you get your financial paperwork organized in a digital and paper file.
You have all your details from working out your income and expenditure. Organize it and keep it current.
It will help when you get to the stage of applying for a mortgage.
Collect your bank statements, credit card, loan details, payslips, and other documents in one accessible file.
#4 Check How Much House You Can Afford
The digital world is your friend when you want to find the answer to how much house you can buy with your level of income.
Plus, you can estimate how much that will cost you because buying a home is a long commitment, and you might like to eat and go on the occasional holiday.
Most mortgage lenders and some money advice websites offer a free mortgage and affordability checker that does not commit to applying for a mortgage.
#5 Plan Not to Max Out
Your house is a place to live, and it is better for you if it does not swallow all your savings and disposable income.
You don’t have to borrow the maximum amount, and you don’t have to put all your available money down on a deposit.
Buying a house you can afford on one person’s salary (if you are a couple) gives you some flexibility if you want to have a family later. Ensuring that your house costs don’t exceed 25% of your monthly earnings makes life more comfortable and less stressful.
Remember, if you can afford more, you can trade up later once you’ve had an experience of homeownership.
Top budgeting tips for first-time homebuyers:
- Use a spreadsheet.
- Record everything – income, expenditure, savings.
- Always check your bank and credit card statements.
- Categorize your needs vs. wants, and spend prudently.
- File your paperwork.
- Be organized.
Stage 2: Pre-Mortgage Selection Stage
Before applying for mortgages, you can research what is available to you.
#6 Shop Around
You want to compare at least three different mortgage suppliers and find out what rates they offer.
A mortgage is a product, and all the usual shopping rules apply.
Before you think about applying for a mortgage, know who is offering the best deals.
Try and check out at least three different lenders.
#7 Clean Up Your Credit Report
You can get a free copy of your credit report, and as a clean credit history gets you a lower interest rate, it is in your interest to check it.
Errors creep into the credit report system through confusion over names, addresses, and random glitches.
If something is wrong, get it put right.
#8 Find Out If You Qualify for a Special Deal
If you are a veteran, want to live in a rural area, or qualify for Federal Housing Assistance (poor credit rating, for example), you can get help with your down payment and access to lower interest rates.
You can ignore what is on offer but if your State wants to give you a helping hand, let it.
You can get on the housing ladder faster and pay less in interest.
#9 Avoid Financial Commitments
You’ve got a clean credit score, funds in place, and you are actively house hunting.
During this time, you want to avoid taking out car loans, credit cards, and other financial commitments because these reduce the affordability of your mortgage in the lender’s calculations.
#10 Clear Your Credit Cards and Loans
If you can, clear any outstanding credit card debt and loans, so you present with fewer commitments.
Plus, after you buy a house, you may need some flexibility for furnishings and repairs.
If you can’t clear your credit cards, try and lower the outstanding balance before applying for your mortgage.
Stage 3: Home Hunting
Home hunting is a time of dreams and possibilities and nerve-wracking if you are competing with other people for the house of your dreams.
#11 Have Proof You Can Afford the House
You can get a pre-approval statement from your preferred lender indicating the maximum amount they are willing to lend.
That amount added to your deposit gives you your house-hunting budget and encourages sellers and agents to be ready to deal with you.
#12 Only View Houses You Can Afford
While it may be fun looking around high-end luxury homes if you can’t afford them, why waste your time and the sellers?
You end up feeling disappointed with what you can buy as a first-time buyer, and it is going to ruin the magic of owning your first home.
You can look at a house a bit outside your price bracket if you think the seller may be interested in a lower offer.
#13 You Don’t Have to Interview Every Candidate
Employers use a shortlist to make sure they spend their interview time productively with the most likely candidates for the job.
The same process applies to house hunting; you need to shortlist the best candidates for your future home.
If there are only three houses on the market, you can see them all, but many houses will be available in practice.
A shortlist to pick the best homes to view means you use your precious viewing time effectively. It also cuts down the costs of traveling and the amount of time you potentially need off work.
#14 Take Notes and Pictures
Human memory is a funny thing, and unless you have perfect recall, you will mix them up in your head if you see five houses in one day.
You will ask questions while you are viewing and have a brief look around the rooms.
The seller’s brochure will have some pictures, but you may find it helpful to snap a few images of what you like and don’t like about a property.
Jotting down a few notes will help you remember the property while your feelings are fresh in your mind.
#15 Research and Ask Questions
When you have a likely house in mind, research the area, potential new development, the neighbors, and everything you think may impact your enjoyment of your home.
Potentially you can live in a house for decades, and time spent now and questions you ask means you avoid costly homebuyer mistakes.
Top house viewing tips for buyers include:
- Use your nose – damp and mold have a musty smell. The seller may try to cover it up with perfume.
- Look up at the ceiling – there may be cracks and damp patches (probably due to leaks in the bathroom above).
- Examine the window frames and door frames for damage and gaps.
- Open and close all doors and windows to check they work.
- Turn on all the light switches and run the taps.
- Count the power outlets in each room.
- Check the heating system works.
- Check you have mobile phone coverage.
- Check under all the sinks for leakage.
- Look at the outside walls for damage.
- Use binoculars and check the roofs.
- Visit more than once and try and go on a rainy day to check weatherproofing.
- Check maintenance standards of neighboring properties.
- Trust your instincts – would you buy a house from this seller?
Stage 4: Mortgage Selection Stage
You found a house, put in the offer, and now it is time to put your funding in place.
You have done your research, and you may have pre-approval, but it is time to address the details.
#16 Be Interested in Interest
A mortgage is a long-term loan, and the lender makes a profit on the annual interest you pay on the capital borrowed.
It is time to brace yourself to crunch the numbers.
Deals fall into the fixed or variable rate categories.
You can set your interest rate for two, five, or more years, and this approach gives you fixed monthly payments.
Alternatively, you can pay the variable rate, and your payments go up and down as interest rates fluctuate.
When interest rates are rising, fixing your interest rates gives you certainty and savings. When interest rates are falling, you get certainty but pay slightly more for it.
Most first-time buyers are vulnerable to unaffordable increases in their payments and find it reassuring to know what they will pay every month – but you have a choice.
You don’t lock in forever but can regularly review unless you adopt a lifetime guarantee.
#17 Do the Math on Discount Points
Your lender may offer you the opportunity to pay a fee to have a lower interest rate. It may or may not be worth it.
The math is simple – how much do you pay for the discount point, and how much over the years you get the discount rate do you save.
If buying the discount rate costs more than you save, then it is a poor deal.
If it breaks even, it is pointless, and if it saves some money, decide if that long-term gain is worth the short-term pain of dipping into your savings.
#18 Explore the Down Payment Options
The amount you put down as a deposit impacts your mortgage interest rate.
Talk to your lender about the various options and the impact on your potential mortgage.
Then think about the right amount for you because you have additional fees and expenses to pay and need some of your available funds to cover these.
Putting all your savings down as a deposit leaves you vulnerable to unexpected bills.
How much should a first-time homebuyer put down?
The amount can vary from zero to 20%. In theory, if you have funds available, you can put down a higher percentage.
You must balance your mortgage deal against the security of having more funds for furniture, repairs, professional fees, and covering unexpected additional costs when calculating how much deposit to put down.
#19 Think About the Length
A mortgage over thirty years will cost you more in the long term, but your monthly outgoings are less than a ten-year mortgage.
As a first-time buyer, you may prefer to have reduced monthly outgoings and consider renegotiating your mortgage term a decade down the line.
#20 Read and Understand the Small Print
Your mortgage document holds many clauses relating to what happens if you lose your job, stop paying the monthly premiums, and if you pay it off early.
Yes, it is in legalese, but it is a contract that covers your most significant asset.
Most States insist that mortgage documents are readable by regular people.
Read through all the terms and conditions and ensure you understand what they mean for you.
If in doubt, ask questions of the lender or get a lawyer to explain the fine print.
Top mortgage tips for first-time house buyers include:
- Check if you are eligible for special loan terms.
- Shop around for the best deal and affordability – get at least three quotes.
- Don’t max out and keep your monthly repayment affordable.
- Read and understand the small print.
Stage 5: Home Purchasing Stage
Remember that buying a house is always a negotiation, usually brokered by the estate agent and your lawyer.
#21 Get Professional Surveys
If you are seriously interested in buying the house, get a professional to look at it and give you a realistic impression of what the home is worth and what you need to do to make the house livable.
The results let you put in a sensible offer and clearly understand what you face when you walk through the door.
#22 Assess Seller Willingness to Negotiate
Some sellers have a fixed price in mind and are unwilling to budge unless it is upward.
Other sellers may have pressure to sell, they may want to move, or the house has been on the market too long.
When you talk to the seller or the agent, look for clues about openness to negotiating.
#23 Look for Incentives
It is not only new house builders who are willing to throw in an incentive to buy.
If you find that the roof needs renewing, you can ask if the seller is willing to either drop the price or get the work done before selling.
You can ask if some furniture and carpets are part of the selling price.
#24 Play Fair
Someday you will be the seller, treat the seller with politeness and respect and be honest in your dealings.
Plus, being a decent human being means the seller won’t remove all the lightbulbs and other fittings before handing over the property in a filthy condition.
#25 Be Clear on What You Are Buying
When you negotiate for the house purchase, get a clear list of what you are getting with the house and garden.
Plus, be clear on what needs removing from the property before you buy it. A basement full of junk is few people’s idea of a good time when moving into their first home.
First-time house buyer negotiation tips include:
- Your vendor has a price in mind, which may be lower than what you will offer, so if there is no competition for the house, put in a lower offer and work up to the seller’s price.
- When you come to your third and final offer, make it a specific number ending with 15, 17, or another odd set of numbers – this implies you are hitting the maximum amount you can afford.
- Don’t let a bidding war push you into the unaffordable territory – other houses are on the market.
- Use the survey results to lower the price for remedial and necessary work.
- Negotiate for extras like white goods, furniture, and carpets as part of the price.
- Compare the house price to other available houses if the price is too high.
- Find out how long the seller has owned the property – if it has only been a few years, they may need a fixed price to cover their mortgage.
- Be polite and friendly; you are haggling, not going to war.
Stage 6: Post Purchase Stage
You’ve bought a house. You are ready to move in; what do you need to think about after buying a home?
Although no one will fine you for not having insurance on your house, imagine the consequences of a tree falling on your uninsured house.
There are several insurances available for a house:
- Property against damage, third parties, and rebuild costs.
- Contents – against theft and damage.
- Mortgage – to cover the mortgage supplier.
- Personal – risks of redundancy, accidents, and death.
The amount and type of insurance you need varies, but property insurance is number one, so you don’t end up with a mortgage and no house.
#27 Send in the Contractors
It is quicker for the contractor and easier for you if remedial work like rewiring and plumbing or additional installations like solar panel system happens before you move in.
Plus, if you want fresh paint and carpets, it is more straightforward to decorate and fit out an empty home than an occupied one.
But if you have substantial remodeling plans, you may need to engage an architect as soon as you finalized your home purchase.
#28 Security Matters
When you buy the house, you get handed the keys to the door.
Now it may be paranoid, but if you change the locks, you know that no extra keys are floating around with neighbors and relatives of the seller.
Even if you don’t change the locks, you need to check that your property is secure as soon as you get the keys.
Even if you are not moving into the house immediately, you will want to check that the door and windows are closed and locked.
#29 Utilities and Paperwork
If you want power, light, and water, you need to read all meters and action the appropriate changeovers.
It is best to take a snapshot of all meter readings to avoid complicated disputes later.
When you move, there is lots of paperwork – notifying banks, relatives, and friends of your change of address, arranging for mail forwarding, finding a local doctor, dentist, and other amenities.
While you are dealing with utility companies, you can do the rest of your life administration simultaneously -checklists help.
#30 Care Kit for Moving In
Unless you have been living in unfurnished accommodation, you probably don’t have much furniture and appliances.
Unless you are super-organized for buying furniture and appliances, there will be a degree of camping out in your new home for the first few days.
Work out what you need to be comfortable – buy or borrow some air beds and plan to eat out or have simple to prepare meals. Plan your first few days so it is more of an adventure than an ordeal.
Top tips for first-time homeowners – vital questions to ask the seller:
- Where are the stopcocks to shut off the water?
- How do the utilities work, and where are the control panels, meters, and thermostats?
- Is anything in the house still under warranty?
- Are there any relevant instruction manuals?
- When is the trash collected?
- Can they recommend any contractors?
Buying your first house is exciting and stressful. You have lots of things to organize and decisions to take at every stage.
Paying attention to the details and allowing yourself time to make the right choices will make the process smoother.