When you talk to millennials about their financial goals and dreams, most people in their 20’s and 30’s will mention the idea of home ownership. While there are some people who are fine with renting, most Americans want to own homes and live life according to their terms. If you fall into this category, now may be a good time to start thinking about making that dream a reality.
It’s easy to get intimidated when you enter the home buying process for the first time, but with a willingness to learn and educate yourself, you’ll do just fine.
Here are some tips and guidelines most people find helpful.
1. It’s a “Starter” Home
There’s a reason people call their first home their “starter” home. It’s a house to get them started – not a house they’re going to live in for the rest of their lives. In fact, most people only stay in their starter homes for three to five years.
When shopping for your first house, don’t get carried away striving for perfection. While there are definitely some features that will be deal-breakers in your mind, being too picky will result in an impossible search that lasts for many months and ultimately yields nothing.
2. Make a Large Down Payment
According to this infographic from Simplifying the Market, the average first-time buyer makes just a 6 percent down payment. While this might be normal, it’s not the best. By making a larger down payment, you can get a lower mortgage interest rate, increase your equity, lower your monthly payment, and possibly even eliminate the need for PMI (private mortgage insurance).
When saving up for a down payment, discipline is key. As Green Residential advises, “Your savings should go somewhere where you can’t touch it. You might open a separate savings account in a different bank without debit cards. You can transfer the money from your primary account to that one fairly easily, but it’s more difficult to get the money out for personal use.”
3. Budget for Closing Costs
In addition to saving for a down payment, you also need to account for closing costs; you don’t want to find yourself in a precarious situation where you can’t afford to complete the transaction after your offer has been accepted.
“A catch-all for the fees and services that result from the sale of a home, closing costs are generally about 2 to 5 percent of the home’s value when you’re making a purchase,” the Practical Money Skills blog explains. “In other words, you could pay about $4,000 to $10,000 on a $200,000 home.”
4. Order a Home Inspection
With all of the money you’re spending on a down payment and closing costs, it may be tempting to cut a few corners. But if you’re going to do this, make sure you don’t cross the home inspection off your to-do list.
A home inspection will cost money, but it’s one of the most important aspects of buying a house. It’ll show anything that’s wrong with the property and help you understand the true condition of the house.
5. Work With an Experienced Agent
Finally, it’s a good idea to work with an experienced agent who understands first-time buyers and can simplify the process for you without making you feel ignorant. Ask around for some referrals if you’re unsure of who to hire.
Get Over Your Fears and Become a Homeowner
Being a homeowner isn’t always easy or fun, but it’s a critical step in establishing financial freedom and setting yourself up to accomplish bigger goals. Once you start the process, you’ll realize that it isn’t nearly as intimidating as some people make it out to be.