It is not easy to be a first-time homebuyer right now. Home prices are surging and new buyers do not have an existing asset to capitalize off of. Due to skyrocketing prices, a first-time homebuyer now needs an extra year to save for their down payment.
Low housing inventory is another challenge for new buyers. To land a home in this uber-competitive environment, first-time homebuyers need a little help.
Read on for a guide to buying a house for first-timers. Explore our beginners’ guide for buying homes that is certain to help.
It is never too early to start saving. With home prices rising rapidly, you are going to need a sizable down payment.
Most conventional loans require a 20% down payment. On a mortgage backed by the Federal Housing Administration (FHA), you can get in with 3.5% down. However, this means you are going to pay Private Mortgage Insurance (PMI) each monthly payment.
There are other expenses involved for a first-time homebuyer. You have to make a good-faith deposit to express your commitment to purchasing a new home.
Other significant expenses include the home inspection, hiring a lawyer, and many closing costs. You can roll closing costs into the mortgage, however, this increases the loan amount. The point here is that you cannot save enough money when shopping for a home.
Get a Pre-Approval
Before you start house hunting, reach out to potential lenders for a mortgage pre-approval. The lender is going to run your credit and evaluate your income.
The objective here is to set a budget for your search. While a pre-approval does not constitute a mortgage approval, it does show sellers that you are credible.
This also gives you a baseline to conduct your home search. You are not going to waste time looking at houses that are over the pre-approval amount.
Use Your Advantage
A first-time homebuyer does not have one major advantage in this competitive environment. New buyers do not have a house to sell.
While this is a negative in terms of hedging against inflation, it does provide buyers immense flexibility. Many homebuyers need to sell their house before taking out a new mortgage. This means they can only make offers with a contingency to sell their home.
Instead, new buyers have no strings attached. They can make offers with zero contingencies. They can also close more expeditiously without another home to close on simultaneously.
The seller’s market in place today requires aggressive action from buyers. Our recommendation is to use technology to your advantage.
One example is to opt for virtual tours instead of an in-person visit. This allows you to beat other traditional shoppers to the punch.
Also, today’s market does not allow you to underbid. If you are in love with a home, consider bidding over the listing price.
Shopping Guide for First-Time Homebuyers
Now you are ready to start shopping for your first home. It is a tough market out there, but not impossible to navigate without professional guidance.
Consider ditching in-person visits and making aggressive offers to land your dream home. If you enjoyed this guide for first-time homebuyers, check out our blog for more great content.