Buying your first home can be an overwhelming and let’s be honest, terrifying experience. It’s exciting of course, but there’s so many unknowns, what ifs and head scratching moments through the process, they really should teach this stuff in school! I am in no way shape or form an expert on this but having gone through the process I wanted to share as much as I could, and answer the most frequently asked questions you guys sent in. To be honest, a lot of this I’ve learned by asking questions and doing research (I live on NerdWallet.com, it’s a REALLY good resource). One thing I did not cover in this post is buying a home when you’re self-employed, it is a slightly different process when securing a mortgage, and in some ways the banks make it harder, happy to do a follow up post on that if it’s of interest. Hopefully this helps those of you thinking about, starting or going through this process, and please feel free to ask follow up questions in the comments.
Q. Where do I start?
At the end of the day, you can only buy what you can afford, so the best place to start when you’re ready to start looking for your first home is to figure out your budget. There’s a lot of factors that go into what you will ultimately qualify for, but it’s really helpful to know up front the approximate number you’re working with. There are a lot of online mortgage calculators to help you figure this out (I like NerdWallet), but they’re not going to be totally accurate, so your best bet is to work with a lender to figure this out.
Q. How do you get pre-approved for a mortgage?
Getting a pre-approval letter from a lender will not only help you when you’re making an offer, but going through that process will help you understand what you can afford. You will need to complete an application which includes pulling your credit report and showing your financial history, debts etc. This is a really good post on the difference between pre-qualification and preapproval. It’s not as daunting as it seems, but as you prepare to do this you’ll want to make sure you have all the documentation required (see this list). If you need to work on improving your credit, it’s a good idea to wait on this until you’ve done that. Keep in mind pre-approval isn’t a guarantee for a loan. Once you’re under contract and have gone through inspections your loan needs to go through underwriting before it’s actually approved by the bank.
Q. How do you choose a realtor?
You should look for a realtor the same way you look for a mortgage lender. Ask around, get references, find out their knowledge of the area you’re looking, check their current listings. Ultimately you want to work with someone that you trust and that has your best interest in mind. You want to work with someone that’s not just going to tell you what you want to hear, and also not going to push you into something that’s not right for you. Find out if they are well connected. Chances are you’ll need help with finding insurance, a real estate attorney, someone to do the inspection, having an agent that can provide you recommendations for these things is super helpful during the process. You also want someone that is accessible and a good communicator. As you start to move through the process it’s important to have someone that is going to be easy to get in touch with and can move quickly when necessary.
Q. How important is it to put 20% down?
The short answer is, it depends. There are lots of options for first time homebuyers to avoid putting 20% down, at the same time the more you put down the less risky you look to lenders. There are programs that allow you to put as little as 3% down or even less if you are an active or retired service member. The amount of money you put down can also impact your interest rate, and you want to try and get the best rate possible. An FHA loan is a great option for first time homebuyers (this is what we used) as they offer good rates and low down payment requirements. There’s a catch though, typically if you’re putting less than 20% down you will have to pay mortgage insurance. It’s not the end of the world, but it’s an additional monthly expense added to your mortgage payment you want to consider. For most loans with mortgage insurance, you’ll need to have 20% equity in your home before you can request to have it canceled. Another important thing to consider is closing costs and earnest money, these are additional funds you’ll need (earnest money is usually applied towards the purchase price of the home).
Q. Will my student loans impact my mortgage eligibility?
Student loans are a debt that show up on your credit report, so yes, they will impact what you qualify for, but just because you have them doesn’t mean you can’t qualify for a mortgage. When applying for preapproval, your monthly debts are factored into the equation along with your monthly income. You have to meet a certain debt to income ratio, this varies by lender, but typically it’s your monthly student loan payment (not the overall balance) that is a factor in determining your monthly debt.
Q. How do you handle financing/title when buying as a couple but you’re not married?
Once again, the answer to this question really depends on your individual situation. When Craig and I were buying our first home, we had similar credit and income, and owned a business together so our application was fairly cut and dry in the sense that we ended up both being on the loan and on the title. But if one person has bad credit or other factors that impact loan eligibility, financing, etc. it can get a bit more complicated. There’s a lot of options when it comes to buying a home with someone if you’re not married, but you need to be honest with yourself, your financial situation and your relationship. In terms of the title you can have sole ownership, joint tenancy or tenants in common (this is a helpful article that explains the difference). Craig and I have joint tenancy which means we own the property 50/50, ultimately you need to decide with your partner what makes the most sense for your situation.
Q. What should I be mindful of during the inspection process?
I think most important is making sure you get a really good inspector. Do not bargain shop or skimp on this, it’s one of the absolute most important steps in buying a home. A good inspector will know what to look for and will have your best interest in mind. An inspection is about more than little cosmetic things, it’s about identifying any issues that may affect the livability of the home and protect you from expensive surprises down the road. It really depends on the house, but some of the key things to pay attention to include: heating/cooling system (what type, if oil how old is the tank, how old is the furnace and has it been inspected recently); roof and chimney; the basement (Craig always says, you can tell a lot about a house from the basement); mold and mildew; plumbing (if it’s a septic system, how old, when was it last inspected/pumped?); electrical systems; foundation (is it structurally sound?); water quality and testing (I think more common for well or spring water); radon gas; asbestos.
Q. How do you decide what’s feasible in a fixer upper?
The answer to this really depends on the person/people buying the home, the budget and the cost of the house. Anything major; roof, siding, plumbing, electrical, etc. is going to be expensive. You have to consider the cost of materials AND the labor. On the other hand, things like paint and replacing fixtures are probably things you can do on your own. You need to factor in the price and value of the house, and then the cost of the repairs/upgrades, and you need to consider the time it will take if you’re doing it on your own.
Q. Better to buy a cheaper home that needs work or a home with upgrades that’s more expensive?
I wanted to answer this separately from the question above because I think it’s a bit different. Again I think this depends on the individual(s), the house, the budget and the lifestyle. Are you someone that works at an office all day in a super demanding job? Think about if you’re really going to want to spend all your free time working on your house. Are you going to be ok living in a house that is in one way or another under construction for a good period of time? It took us basically two years to finish the major projects on our house, and we still have more to do. We’ve basically spent all of our free time over the last two years doing work on the house, and we still spend a lot of our time doing projects. It’s super rewarding but it’s not always fun and glamorous. You also need to consider how much of the work you can actually do yourself. We’ve managed to do everything on our own with the exception of some plumbing and electrical work. That said, Craig worked in carpentry and plastering for 8 years before he started working with me full time. A lot of stuff he has learned through research and yes, YouTube, but he also has experience. Don’t forget as I mentioned above to consider the cost of upgrades, labor and materials are expensive. Just replacing the siding on the back of our house (materials only) was $3500 (and our house is a small one level). It really depends on the amount of work too, if the house has been well maintained and is a great value but just needs to be upgraded (paint, appliances, fixtures) it might be worth it to take it on and do most of the work on your own.
Q. How do you know when you’ve found the one?
I got this question a bunch and I don’t quite know how to answer but I have some general thoughts. When you start your search and you figure out your budget, decide on what you really have to have. As an example, Craig and I wanted a good location, a yard (bonus it was fenced), a garage, a place we could make our own (meaning didn’t need to be renovated but also not a complete teardown). We knew we couldn’t be that picky because a) we live in a competitive market and b) we didn’t have a big budget. If you’re in that situation (not working with a big budget) you have to be creative when you’re looking and see the potential beyond what the house looks like as it is. As you guys probably know, our house was not anything like it is now, but it had the main things we wanted, and we’ve been able to make it into our dream home. And the last thing I will say is this, there’s really only one thing you can’t change about your house, and that’s the location, so in my opinion that’s more important than anything else.