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9 Things You Need To Do Before You Purchase Your First Home

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What You Need To Do Before You Purchase Your First Home

Like most first-time home buyers, I was way too excited about purchasing my first home to consider what steps I needed to take before I did it.

I would peruse the real estate sites such as Zillow, dreaming of my new home before I even knew whether or not I would be able to purchase it first. 

I didn’t pre-plan my finances the way I should have or start the process the correct way at all.

If you’re considering purchasing your first home, there are still a ton of things you need to do beforehand to ensure you get the home of your dreams and the right mortgage loan that best fits you financially.

Find the best mortgage interest rates at Credible.com! Get up to 10 quotes from vetted lenders in minutes!

We want to help you streamline the process of purchasing your first home to set you up for an enjoyable home buying experience and financial success! This way, you’ll spend less time daydreaming and more time fact-checking your new home purchase, and trust me, that pays off in the long run.

Here’s what we’ll cover in this article:

  • Consider the Pros & Cons of Homeownership
  • Create a homeowners budget
  • Calculate how much home you can afford
  • Consider qualifications before applying
  • Compare loan types
  • Compare lenders
  • Get pre-approved
  • Get a realtor
  • Get a home inspection

9 Things To Do Before You Purchase Your First Home

1. Consider the Pros & Cons of Homeownership

The first thing you’ll want to consider as a first-time homebuyer is the pros & cons of homeownership. Like anything, there are upsides and downsides to being a homeowner, and you want to be sure you are taking this into consideration before you even think about purchasing a home.

Of course, I thought of the pros but did not consider the cons very much before I jumped into purchasing my home. For instance, I never had to worry about paying for home repairs when I was renting because the landlord was responsible for that.

When faced with unexpected costly home repairs, it makes you second-guess whether owning is worth it. 

However, if you prepare for these expenses ahead of time by building an emergency fund account, you can resolve most of your new home’s pesky problems without any headaches or trips to the bank. It’s recommended to have 3-6 months of essential living expenses saved in your emergency fund.

This may sound like a hard goal, so you can start working towards your first $1,000 then build it from there.

My mom has always been great at saving, and it’s helped her countless times when it came to unexpected home repairs and costs. She had black mold in her basement, and it was under the enclosed crawl space.

It cost thousands of dollars to get it removed and treated—ouch! It’s a good thing she had an emergency fund saved up for unexpected expenses such as this.    

Having emergency funds can help you cover costs such as:

  • Sewage backups, ground seepage, and other water damage 
  • Electrical issues
  • Appliances when they break, such as your water heater, refrigerator, stove, etc.
  • Mold & Fungus

Think of your emergency fund as a way to protect you against all the small common problems your home will have, like if there’s a problem with your plumbing, electric, or appliances.

This fund won’t cover the big stuff though, that’s what homeowners insurance is for. You want to be sure you understand what your homeowner’s insurance policy covers so you know what expenses you may have to cover if necessary.

For instance, flood insurance may not be required or included in your policy, so you may need to know if it would be worth purchasing additional insurance or not. 

Of course, being a homeowner comes with many perks, and it’s great being able to make your decisions when it comes to your home. But that doesn’t mean homeownership is a walk-in-the-park, either.

Here are a few pros & cons to consider prior to purchasing your home:

Pro: Good Investment & Build Equity

Unlike renting, owning your home is a good investment. When you rent, you never have the opportunity to get any of your hard-earned money back. However, when you own your home, you have the potential to build equity and eventually own it free and clear!

You can tap into your equity if needed for financial needs or sell your home for a profit if the market is good and you’re looking to move.

Pro: Tax Deductions

One pro of being a homeowner is the possible tax deductions you can claim. Homeowners may deduct the interest paid on a loan that’s used to buy, build, or repair their home.

This is called a Mortgage Interest Deduction and means you can deduct all of the interest you paid on your home loan if it’s $750,000 and under. You can also deduct late fees paid on your mortgage loan and prepayment penalties.

Pro: You control home-improvements and other decisions

Being able to make the decisions of your home-improvements, such as painting, decorating, landscaping, and more, is a huge pro of being a homeowner. I love being able to do what I want in my home without having to ask someone permission.

Another pro of being a homeowner is if you are a pet-lover or have pets, you don’t have to worry about paying additional rent or deposits. 

Con: You pay for all repairs and upgrades

Unlike renting, you have to front all of the costs and deal with getting things fixed. Electrical issues, plumbing problems, and more can cost thousands of dollars, so you need to be sure to have an emergency fund account for repairs.  

Con: Large upfront costs

Purchasing a home is expensive and can require large upfront costs such as a down payment, home insurance, and closing costs. Saving money before purchasing your home while paying for a place to live may prove difficult. 

2. Create a homeowners budget

Once you have decided that you want to purchase your first home, you need to create a homeowner’s budget. This is the most crucial step to do as a first-time home buyer because you need to consider all expenses before you proceed. 

Unfortunately, this was a huge step that I didn’t do! All I considered was making the mortgage payment and bills and never considered additional expenses such as home repairs, property taxes, lawn maintenance, etc.

If I had budgeted and saved up an emergency fund, I would have been able to pay for our water heater when it broke and avoided racking up credit card debt.

When creating your homeowners budget, you want to consider all expenses you have and the additional expenses you will acquire as a first-time homebuyer. Creating a budget is essential when it comes to purchasing your first home.    

3. Calculate how much home you can afford

We’re all guilty of desiring to live like a rockstar as first-time homebuyers, but you need to be realistic about how much home you can really afford. Just because you may get approved for a mortgage loan doesn’t mean you can technically afford it.

For example, Americans that couldn’t afford their housing went up 146% in 2017! 

This is known as being “house poor.” Basically, you are living above your means and are struggling to get ahead because you have too large of a house payment.

As a first-time homebuyer, you want to calculate all expenses, including home repairs, and budget for savings. Luckily, I purchased my home at a great price and didn’t overspend on my first home.  

4. Consider qualifications before applying

As a first-time homebuyer, you need to be sure you are qualified before applying for a mortgage loan. To be considered for a home loan, you will need to meet the financial prerequisites to qualify.

You will need an acceptable credit score, employment verification, and your debt-to-income needs to be 36% or lower. 

You will most likely need a down payment depending on the type of mortgage loan you are qualifying for.

As a first-time homebuyer, I was able to get qualified for an FHA Loan, and my down payment was only 3.5% rather than the required 20% of the home price like some loans require.

Properly preparing before purchasing your first home can help prevent home buying mistakes. Although not paying 20% down was easier on my wallet at the time, within four years, I had paid over $5,000 in Private Mortgage Insurance.

I ended up refinancing into a conventional mortgage to remove PMI from my loan. This is the only way to remove PMI on a government-insured loan. If you have PMI on a conventional loan, it will be removed once you reach 80% home equity on your loan balance

PMI costs range from 0.25%-2% of your loan balance per year depending on the size of the mortgage, your loan term, down payment, and credit score. Private Mortgage Insurance is a type of insurance that protects the lender in case you would default on your loan.    

If I would have prepared by saving a 20% down payment, I could have saved thousands of dollars and had more equity in my home, to begin with. Ensuring you are qualified before purchasing your first home can help save you time and money. 

5. Compare Loan Types

When purchasing your first home, you want to compare loan types to find which mortgage loan best suits your financial situation. Like many first-time home buyers, I opted for a government-insured loan such as an FHA Loan because I didn’t have to put down a large down payment. 

I personally always choose a fixed-rate mortgage rather than an adjustable-rate mortgage because it’s easier to budget over the life of the loan, and you don’t have to worry about the introductory rate maturing and increasing to where you are no longer able to afford your payment. 

A fixed-rate loan is when you have a set rate over the life of the loan, whereas an adjustable rate is a variable rate loan. On our previous home, we had a 5/1 ARM loan, which meant that we had a locked interest rate for the first five years, then it adjusted to the current market rate after.

This made our payment almost unaffordable! This was a mistake I could have avoided if I had gone with a fixed-rate mortgage instead.  

Comparing loan types can ensure you get the right mortgage loan based on your budget and financial situation. There are many first-time home buyer mortgage loans and programs to choose from. Some first-time homebuyer programs are:

  • FHA Loan
  • VA Loan
  • USDA Loan
  • Fannie Mae or Freddie Mac
  • State First-time Homebuyer Program

 Be sure to research them thoroughly before purchasing your first home.  

6. Compare Lenders

After you find the correct mortgage loan, then it’s time to compare lenders. I wish I would have done this key step because I may have been able to find a cheaper rate and saved money on my monthly payment.

One of the best ways to compare lenders and rates is by using a mortgage comparison site like Credible.com. With Credible, you will find the lowest rates from top mortgage lenders in minutes. By comparing lenders, you can save thousands of dollars by getting a lower rate.

7. Get pre-approved

Some first-time home buyers start with getting pre-qualified but getting pre-approved is more beneficial when purchasing your first home. When you get pre-qualified, you basically give your name, phone number, and your income without proof and get a prequalification.

A pre-qualification is only a quick estimate of what you can probably afford.

In comparison, a pre-approval is an actual approval from the lender based on all financial qualifications necessary to get approved for a mortgage loan.

To get pre-approved, you will fill out a mortgage application, have a hard credit check, and provide information such as debts, assets, income, and employment history.   

This is essential when purchasing your new home because if you find a home, you would like to put an offer on your pre-approval letter can give you an advantage.

I opted for getting pre-approved because I wanted to know what I would be approved for and be able to put a contract on a home as fast as possible. 

When you have a preapproval letter, sellers know you are serious about purchasing a home and that you are qualified for a mortgage loan. Plus, you have the majority of your documentation done, thanks to getting pre-approved. 

8. Get a realtor

Purchasing your first home can be overwhelming, and getting a realtor can be a huge help. When I was shopping for my new home, I was spending too much time trying to filter through all the houses that didn’t meet the criteria of what I was looking for.

So, I decided to get a realtor and discuss my desires for my first home so she could search for me and send me properties that fit my needs and wants. 

This was a major help because she found properties that I didn’t even know were for sale. The best thing to do as a first-time homebuyer is to get a realtor and have them help you find your dream home. 

9. Get a home inspection

I would never purchase a home without getting a home inspection first. There may be underlying issues that you are unaware of, and getting a home inspection before purchasing your first home or second home can save you from getting stuck in a home with unexpected issues.

A home inspector can discover:

  • Mold
  • Plumbing leaks or issues
  • Electrical problems
  • Roof damage
  • Foundation issues
  • Asbestos & more

My home inspector advised us that the vapor barrier beneath the house needed to be replaced. This informed me of an unexpected issue and prepared me for the expense so I could calculate whether I could afford to fix it or not.

If there are issues you want to be addressed, you can request the seller to fix them before closing or deduct the cost from the purchase price. Not everyone will agree to this, but it doesn’t hurt to try to save money from unexpected costs. 

What to do recap

By properly preparing to purchase your first home, you can have a good home buying experience. You will avoid first-time homebuyer mistakes and ensure you are buying the best home that fits your wants and needs.

Be sure to apply the key 9 tips before you purchase your home:

  1. Consider the Pros & Cons of Homeownership
  2. Create a homeowners budget
  3. Calculate how much home you can afford
  4. Consider qualifications before applying
  5. Compare loan types
  6. Compare lenders
  7. Get pre-approved
  8. Get a realtor
  9. Get a home inspection

Don’t forget to find the best rate at Credible.com!

If you apply these key tips before you purchase your first home, you will have a smoother transaction and be a well-prepared first-time homebuyer.

Contributor’s opinions are their own. Always do your own due diligence before investing.

*Advertisement from Credible Operations, Inc. NMLS 1681276, not available in all states. Click here for important information about Credible’s licenses.

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