If you've reached the point in your life where you're ready to purchase a home, it takes more than just simply having the down payment for it. Here's everything you need to know.
Do you want to be a homeowner?
Buying a home is a great expense.
Home buyers are often met with a wide variety of decisions to make that may feel overwhelming to process, especially for first-time buyers.
Whether you're looking for a multifamily residence to make money off of while also having a place to live, purchasing a home for your growing family or starting anew in a fixer-upper, you'll encounter a number of decisions and challenges you never have before.
Last year, according to the National Association of Realtors, first-time home buyers made up 32% of total buyers, with the typical first-time buyer being 35 years old.
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Most of last year's first-time buyers were married couples, totaling 59% of buyers, with 19% of first-time buyers being single females and 10% being single males.
When thinking about buying your first home, and before the keys are in your hands, you'll need to take the necessary steps to ensure you're protected and making the right decision.
Here are 10 items to include on your home buying checklist before signing the papers.
It’s never too early to start saving for the grand things in life you both want and expect to have.
If buying a home is a priority, especially a big home in a beautiful area, you'll need to consider an immediate course of action for saving. Saving will both allow you to purchase a home and to prepare for unexpected costs.
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First time home buyers are often unsure how much they need to rack up in a savings account before looking at homes.
"The minimum to put down is 3%, and we say add another 2-3% for closing costs," Sara O'Malley, Realtor at The Balcerzak Group of AB & Co. Realtors in Maryland told Fox News Digital.
O'Malley has been in real estate for over six years and is exuding success in the industry. She is a recipient of the 2022 Baltimore Real Producers Rising Star Award and the 2023 Baltimore Magazine Top Agent award.
"I don't recommend more than 3%," she said.
There is a misconception about putting 20% down when purchasing a home, according to O'Malley.
"There's not that much of an advantage between putting 3% or 20% down. The difference between 3%, 5% or 10% is pennies a month," she said. "I always tell people to keep their money, buy stocks, investment properties and invest your money elsewhere."
The amount of money you'll need to have stored away will also depend on loans and incentives, according to O'Malley. First-time home buying incentives may not make a huge impact on the price of a home, but they are something to take advantage of. Loans like VA loans for eligible active military personnel and veterans include 0% down incentives.
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Saving can be tough, especially if you don't have enough room to do so, so don't forget about the incentives offered to you.
If you've already saved, and you're truly ready to look into becoming a first-time home buyer, you'll need loan preapproval.
"Really know your monthly payment," O'Malley said. "It doesn't matter what your rate is, know your monthly payment and get super comfortable with that payment."
She said that banks may preapprove you for an "ungodly" loan, but that doesn't mean you can afford it, so beware of overspending.
Consider esthetics both in and outside your home. You'll want to decide on the type of neighborhood, the size of your yard, square footage of the home, amenities like an outdoor pool and more.
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Make a list of the must-have home attributes, a list of the ones you'd like to have but aren't dealbreakers and the ones you refuse to negotiate for. For example, if you absolutely need four bathrooms, you'll want to avoid homes with only one or two.
Looking at homes online first through sites like Zillow and Realtor.com will provide an idea of what a property looks like, but photos can be deceiving.
If you like what you see online, work with an agent to attend open houses and get a true feel for what you are looking for. In researching, you may find more attributes you'd like to have or reconsider some of the must-haves you might not really need.
While you're likely saving for more than one thing, one easy way to set aside funds for a home is to set up an account specifically dedicated to home buying.
If you have a steady income, choose an amount to be automatically deposited into your account each time you receive a paycheck. Then, leave the account alone and let it grow. Adjust contributions after a raise or bonus to grow the account as quickly as possible. Look into high-yield savings accounts for this type of belt-tightening.
How early you should begin saving depends on when you hope to purchase, how much you already have saved, incentive programs, the size and location of the home you prefer and more.
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If you've just graduated from college and are willing and able to live with your parents, it may be worth the sacrifice to save. Set aside the money you would’ve spent on rent for your future home. Though it may be more appealing to immediately leave on your own, it's more economical to move in with your parents post graduation and save if you can.
If you do hope to immediately move into a place of your own, like an apartment, find roommates to decrease the cost of rent and utilities and save the difference.
You'll likely also need to consider making daily financial sacrifices, like choosing to cook at home versus going out to eat, purchasing a used car versus a brand-new model or using the great outdoors as your gym versus signing for a membership at an expensive location.
What is your budget for home buying?
Ignore what furniture and moving boxes or trucks will cost and simply assess how much you are comfortable spending on a mortgage, closing costs, property taxes, HOA fees and insurance. Additionally, calculate the cost of your down payment if there is to be one.
"Get a feel for what your price point is going to get you," O'Malley said. "I don't advise buying the first house people look at."
She recommends seeing what a price point will get you in different areas and neighborhoods, as you could get a single family home with a garage in one and a townhouse in another.
"Get a full view of what your money can do in the market," she said. "I do think it's important to look at resale value, too."
O'Malley advised that buyers may not be thinking about selling when they're buying, but it's advisable to do so. She recommends understanding whether the area is forecasted to appreciate and to look somewhere you'll be able to sell in the next few years.
Later, you’ll also want to think about new expenses like maintenance costs, any new utilities, yard work, moving, etc. and factor those into your budget.
Once you have your budget worked out, stick to it, though it may be difficult. Avoid financial troubles after purchasing a home you can't truly afford.
When it comes to buying a house, timing is important, but it's not everything.
"There's another misconception that spring is great for buying and winter is terrible," said O'Malley. "The best time to buy is when you feel comfortable with your monthly payment, and you need to move or want to move."
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While you'll want to keep track of market trends so that you're considering opportune times to buy, there is no perfect time for loans or rates. Nevertheless, O'Malley advised her team often sees the most inventory in the spring. If you want more housing options to choose from, you may want to buy in the spring.
"But with more options comes more competition," she said.
She also recommends that you avoid being afraid of homes that have been sitting on the market for a little while. It's normally the home price, and you may be able to score a good deal and get closing costs paid for.
You'll also want to consider what else is going to cost you in addition to a mortgage. Are you drowning in student loan or credit card debt? Do you also have an emergency fund set-up in case your income is stripped away, or you're met with unexpected expenses?
There are tons of different loans you can apply for as a first-time home buyer, so it's vital that you look into all the options available and pick the best one for you.
Popular loan options for first-time buyers include conventional loans, FHA loans, VA loans and USDA loans. There are also down payment assistance programs, state programs, charitable programs and educational programs.
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"And you can buy ‘grandma’s house’ that may be outdated or need some work and do a renovation loan, where the costs of the renovations are built into the loan," O'Malley said. "So you don't need that money out of pocket."
When it comes time to apply for loans, you want the best possible credit score to your name to help you get approved for great rates.
"I think the minimum is 580 to buy," said O'Malley. "It may be a little lower, but you really just need to know your credit score, check it often and talk to loan people before paying off debt because it could hurt your score."
Establishing a good credit score can take time, so leading up to home buying, make sure you pay off loans on time, avoid getting too close to your credit limit and never miss or pay late on your credit cards.
Each of these things will assist in acquiring and maintaining a good credit score.
A bad score is going to make home buying a lot more difficult for you.
Realtors are experts in the home buying and selling industry. When you’re ready to start looking for homes, a real estate agent can make the process a lot smoother.
When searching for a real estate agent, look for someone who is licensed, full-time and is experienced in the neighborhoods you're looking at buying in. You'll also want to consider someone with a good reputation and knowledge of the industry.
"Pick an agent that has your best interest," O'Malley guided. "Do your research, interview agents and find the person that works for you."
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But how do you know if someone has your best interest? O'Malley recommends someone with realty as their career, who is also trying to feed their family and wants you to have a great home buying experience.
"I'm licensed throughout Maryland, but I don't sell everywhere in Maryland because I don't know it well," she said. "I would never take a client in an area I don't know because that would be a disservice to them."
To find a real estate agent, look online and be sure to read reviews, ask around among friends and family or go to an open house and meet agents there.
Having a home inspection is a safety measure you don't want to skip. Inspections do cost money but are a step you should definitely take during the home buying process.
"People are waving inspections entirely. I don't like that. I never tell my clients to do that," O'Malley said. "Even brand-new construction we do inspections for because every house is going to have something."
If you avoid a home inspection because of the initial cost or the hassle of finding a reliable inspector, you may truly regret it later on. Once you purchase the home, the problems that remain are going to be passed down to you, the new homeowner.
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"Not only should you do a standard home inspection but a specialty one, too," O'Malley advised. She recommends specialty inspections for radon, the leading environmental cause of cancer, chimney, termite and pest inspections, too.
"It might be a lot of money out of pocket up front but will save you a ton of money in the future," O'Malley added.
