Tips for First-Time Homebuyers

While the residential real estate market is on fire and can be intimidating for someone looking to buy their first home, it is still a great time to take on the pride of homeownership, thanks to the low interest rates and the upcoming tax credit for new homeowners supported by the Biden administration. Here are some tips to ensure that your first home buying experience is a smooth one.

Avoid any unpleasant surprises by checking your credit prior to starting your home search. Many people get fairly far along in the process and their mortgage gets declined due to an old medical bill that was sent to collections. Websites like CreditKarma allow consumers to see updates to their credit on a monthly basis and can be a great tool for preparing to buy a home. It is also worth noting that there are three major credit bureaus, Experian, Equifax and Transunion, and they each have their own scoring system. A FICO score will be the most comprehensive picture of your credit history, and pulls from all three credit bureaus. You will want to check your score with all three major credit bureaus for the most accurate information. 

You will want to make sure that you have adequate cash for both your down payment and closing costs. While certain loans, like FHA loans, allow for homebuyers to put as little as 3.5% down, this always depends on the lender, the loan type and how competitive the market is at the moment. 

Once you’ve checked your credit and feel fairly confident with your score, your next step is to secure a pre-approval from a lender. You may want to hire a real estate agent before getting your pre-approval, as they have experience dealing with various lenders and can point you into the direction that will best meet your needs. Additionally, a pre-approval gives you an educated budget to stick within, and well as leverage when submitting the offer. 

Once you have a pre-approval, avoid opening any additional lines of credit or making any big purchases until you have closed on your new home. Any changes your credit score can affect your ability to close, so maintain your current credit status to keep the entire process moving forward. 

The best way to get the best bang for your housing buck is to work with an experienced real estate agent who knows the ins and outs of the local market like the back of their hand. Working with an agent that is also part of a team will give you the advantage of accessing information on properties that have not yet hit the market or are listed by one of their colleagues. They also can advise you on how to best approach submitting your offer for a better chance of acceptance by the seller.

Prefer to live near downtown? Looking for a quiet area where the kids can play outside? How long of a commute are you willing to take every day? Choosing a location that meets your lifestyle is very important for your long-term happiness in your home and in your neighborhood. It is also important to think about how important each lifestyle factor is in your search and what you can compromise on, depending on your budget. Note that in Wake County many agents advise against picking a home based on the school zone where it is located, as the school zones change very frequently. 

Many first-time homebuyers look to their current bank as the only resource for financing a home. However, there are mortgage lenders that specialize specifically in home loans, and there is a wide variety of financing options. Many banks or credit unions have first-time homebuyers programs, but they vary greatly in the benefits offered. Your agent will often have preferred lenders that they have experience working with and can guide you to some additional resources that can be more competitive than a large bank or internet loan provider. 

Closing costs are typically 3-5% of the home’s value and are due at closing in most cases. Many first-time homebuyers do not factor in this additional cost into their savings and focus solely on the down payment. It is important to make sure that you include your closing costs into your initial down payment budget to secure the appropriate amount of cash for a smooth closing day. 

In your search, it is important to have a clear idea of what you cannot live without and what you would like to have in your home but isn’t an absolute necessity. Also consider if a home does not have a feature that you are seeking, whether it would be possible to add it into the home down the road. The more flexibility and creativity you have during your search, the broader your prospects. 

Some sellers would prefer to sell their treasured home to new owners who will love it as much as they did. Submitting a personalized letter to the seller with your offer explaining why you love the home and want to make it your own can sometimes help your offer get accepted, even if it is less than another offer. 

While the current market can be intimidating for first-time homebuyers, it is still very feasible and with the interest rates remaining low, it is a great time to take advantage of the rates and get more home for your dollar, oftentimes for less than monthly rent. 

Thinking about buying you first home? Check out this list of local professionals with the Jim Allen Group. 

The Jim Allen Group is a nationally recognized and award-winning real estate team in Raleigh, North Carolina – ranked the #1 Coldwell Banker HPW Sales Team in the nation.