A First Time Buyers Guide to Buying A New House

No matter how much the world of investing and finance has changed around us, few investments carry first-time-long-term-,wealth-creating opportunities quite like the property game does and equally, it’s something of a “right of passage” for millions of young people all over the United States that enter the housing market every year.  But, it can also be an incredibly costly exercise (outside of how much it’s already going to cost you) because many first time buyers have not taken the correct advice and or don’t know what they’re supposed to be looking out for.

So if you’re planning on taking the leap and giving away a sizable chunk of your paycheck for the next 20 years, read on.  We’ve got your first-time buyers’ guide right here.

KNOW HOW MUCH YOU CAN SPEND

This is your departure point and you have to get it right, especially if you’ve done everything right up to this point.  You’ve scraped and saved, managed your credit properly and now you’re ready to go mortgage shopping and all of that’s great, but you still need to know your numbers.  Never accept the first offer and start with your bank if you’ve been with them for a long time and you’ve run your accounts properly, they should be able to cut you a good deal.

But you should still take your mortgage to market and see what other companies can get for you.  There are a few things to look out for though:

Check your mortgage options.  Are you going for a conventional mortgage, FHS or USDA loans or do you qualify for veteran mortgages?  A good mortgage broker can explain all of these terms to you and how you can access different benefits based on your background.

Don’t fall for “too good to be true” mortgage offers.  If you know you only earn $50k a year but someone is offering you a $500k mortgage with an opening deal featuring virtually no interest... you get the idea.

You can find a list of the top ten mortgage brokers in America, here.

LOCATION, LOCATION, LOCATION

It was true then and it’s true now and it is going to be true forever.  Ever heard the saying, “buy the worst house on the best block” well, if you can handle some home remodelling DIY without having to shell out too much money, it’s still excellent advice.  But whether that fits your profile or not depends on you, though it is still very good advice to research your target neighbourhoods.  As a first time buyer, the temptation is wanting to go too big too soon and this is where a good mortgage broker and some solid advice from mom and dad can go a long way.  Rather choose a property that you know you can easily manage, pay off before it’s due (and save a ton of interest) and start building your property portfolio off the back of that than going for bust first out of the gate.

Think delayed gratification here.  You can always pay your loan off quicker or get another loan on a buy to rent property as your financial situation changes.

BUY THE BEST THAT YOU CAN AFFORD IN THE BEST LOCATION THAT YOU CAN AFFORD

So this leads on a little from the previous point but it’s especially true if you’re a city dweller in places like New York or Los Angeles where property prices are at a premium.  Even as a first-time buyer, it’s better to sacrifice space and size for the benefit of knowing that you’re going to at least get your purchase price back plus growth when you’re ready to move on.

ALWAYS MAKE AN OFFER ON CONTINGENT OF HOME INSPECTION

Take dad with you.  As a first time buyer, it’s very easy to let your excitement levels get the better of you and if you’re not naturally a home improvement DIY kind of person, then it’s a no brainer.  Take someone who does know about this “stuff” with you.  Things like checking the floorboards, windows, glass door rails, ceilings and finishings. Do you know how to check for mold and how to handle it?  Mold is a killer and if you’re not au fait with the mold remediation process, you’re going to want to find someone who is.

Remember to check for electrical compliance certificates and to see the records of when last (if ever) the home was fumigated.  If you’re moving to an area that you don’t come from, then do you know what issues are specific to that area?  Is the location earthquake-prone as this could potentially have an impact on the structural soundness of the home.

FINANCIAL PLANNING (YOU’RE GROWN UP NOW)

Before you even begin the process of searching for a mortgage, you need to know what your current financial self looks like and more to the point, what you want that to look like in a year from now and 4 years from then.

Pay off your short-term debt. Save at least 10% as a downpayment (honestly, 25% is better).  Create an emergency fund and save at least 3 months pre-tax salary into it and never, ever spend more than 25% of your salary on a mortgage.  Most brokers won’t let you anyway but it’s worthy reinforcing that bit of advice.

Also, make sure that all of the monthly “must-dos” that exist in your life can be serviced for a short term without you having to earn a salary in case something untoward were to affect your income-earning ability.

Do take out life insurance at least to the value of your home.  This is especially true if you have young children and are a single parent.  It’s true in any event, but you never want to be in the situation (God forbid) where you have to start “getting your affairs in order” and your biggest problem is going to be, where do the kids live?

Depending on your financial status, you’re probably going to need a good two years worth of thorough financial planning before you can even think about starting the home search.  This is more true in big urban centres than in outlying areas but you can’t be too prepared when it comes to buying your first home.

BUY YOUR HOME OR BUILD YOUR HOME

Don’t be put off building your own home just because it’s your first time in the property market.  If you are the type of person that can manage running a building site while running your life then you can save a lot of money and many builders will offer first time builders extended warranties that can cover the cost of major repairs without costing the homeowner anything out of pocket.  So if you’re not in the market for your dream home (yet) and you’re prepared for a different kind of journey, then building your first home might be an option for you.  Take a look online there are so many super-cool and innovative options that you could be enjoying and again, you could save a lot of money.  Also, it’s never too early to start thinking about ways that you can increase the value of your home.

CONSIDER THE FIXER UPPER (OR DON’T)

It may seem very attractive, especially as a first-time buyer.  If you’re prepared to take on a fixer-upper you can get a lot of bang for your home-buying buck, but if you’re not a DIY kind of person and you can’t afford to appoint a full-time contractor - walk away.  At least until you’ve been able to skill-up by spending time on a home remodelling project and learning how to do what you’re going to need to do to pull this off.  It seems very romantic, but there is nothing classy about sleeping under stars because you have no roof.

This is an exciting time in your life and it shouldn’t be marred by unforeseen issues that should be fairly simple.  A good mortgage broker will have your back, yes - but you should also take the time to educate yourself and know what you’re in for before you’re in for it.