A guide for first-time home buyers
Pursuing the American Dream of Home Ownership is a big deal and many consider is a step into adulthood. And now millennials are joining the party—the average first-time home buyer in the U.S. is 31 years old. But before you buy, here are some things to do.
1. Assess your need
You don’t want to be buying a home just because you turned 31 or because your friends have started doing it. Determine whether it’s better for you to buy or rent at this time in your life. Think about your family and whether you have plans to marry or have children in the near future. Factor in your job and if it’s stable, whether you plan to stay long term or if you are itching to try something new. Make sure you are buying a home because you want to and you are ready at this time.
2. It's a Math Question
Many people focus on the down payment when they think about buying a home. Yes, the down payment is usually a large chunk of money. But there are other upfront costs you need to think about—taxes, property insurance and closing costs for example. Insurance rates and property taxes will vary by state so you’ll want to check on what it would be. Closing costs encompass many fees including origination, underwriting, appraisal and title insurance. It can add up to a surprisingly large number so it’s good to know it ahead of time.
3. Start Preparing in Advance
You’ll want to have all your documents ready to make the process go smoothly. In most cases, you will need government issued ID, a credit report (you can get free copies every year), a verification form from your employer, W-2 forms, federal tax returns and bank and asset statements. Some of these documents would also have helped you to figure out how financially ready you are to buy a home. For example, you want to make sure your credit is in great shape before you try to get a mortgage and pulling your credit reports can help you see where you stand. You can also check your credit scores for free using the Credit Report Card, a free tool that gives you grades on the major credit scoring factors so you know where you can improve your scores.
4. Go Shopping
A house is likely the largest purchase you’ll ever make, so treat it like other large purchases. That means you want to shop around as you would for a car, TV or couch. It may be time consuming but it’s important to look at comparable homes in the area. You could work with a licensed real-estate agent or start your search online. You want to look at a variety of options to not only find the right one for you but to get a feel for the pricing in the area.
5. Step back and Be Prepared to Walk Away
If you aren't comfortable with the purchase, you may have to leave a near-perfect house for someone else to buy. Before you make this large of a purchase, you want to be sure you feel OK committing to a monthly mortgage payment.