Things Every First Time Homebuyer Should Know

You’re tired of renting and paying someone else’s mortgage.  Now you want your own piece of the American dream. Experienced home owners make it seem easy.  If you are new to home ownership there are quite a few things that might take you by surprise.  Here are a few things to keep in mind as a first time home buyer before you begin your housing search.

1. Decide location versus space before searching for a home

   Nobody enjoys experiencing buyer’s remorse.  It’s even worse when it involves a large purchase decision. Before shopping for a home, it’s important to set your priorities and decide which is more important to you: space or location. In most cases location will be more important in the long run than the space you have.  Also, knowing where you want to live can help you narrow your search.

2. Don’t commit before you’re ready

   Though a mortgage payment is typically lower than a monthly rent, owning a home is a huge financial commitment -- In addition to your monthly mortgage payment, figure out how much you’ll be paying for property taxes, homeowner’s insurance, HOA fees and other monthly costs of owning a home.  In some cases this means spending as much as 25% more each month than you were paying in rent.

3. Sweat equity can save thousands over hiring professionals for renovations

   First time home buyers can tackle many of their home improvement projects themselves. If you have the skills, the time and the patience, do-it-yourself home improvement projects can save you 50-60% of the cost of hiring contractors.

4. A down payment is a good investment

   As a first time home buyer, you may qualify for a loan that doesn’t require a large down payment.  Though it may seem like a good idea to put that money elsewhere, putting it into the home is a much better idea. First it gives you more security by immediately giving you equity in the home.  If you are able to put down 20% it can even save you money each month by removing the mortgage insurance requirement.  Choosing the right type of mortgage is extremely important.

5. The school district will affect home value

   Demand directly affects value.  Even if you don’t have children, if you live in an area with good schools there will be a high demand for homes in the area and it will drive up the value of your home.  This also helps when it comes time to sell your home. It will garner many more offers if families want to move there.

6. A land survey will answer boundary questions

   First time home buyers may be surprised to learn that the land boundaries may not be what they seem. Before making changes to your property, it’s a good idea to find out your exact property lines. You can’t always rely on the seller’s knowledge of the property, so getting a land survey will clear up any uncertainties you have.

7. Check building plans for the neighborhood

   You may have a great view out your back windows, but there may be plans to build an apartment complex in that now vacant land. Before buying a home, find out if there are any building plans near your home to avoid surprises after you’ve moved in.

8. Have cash for home improvements

   The home is perfect, or nearly perfect…  Maybe you want to build a deck or finish the basement.  These improvements will add to your enjoyment of the home and increase its value, but they come at a cost.  First time home buyers should be sure to plan for these improvements and have the funds available.

9. Dig deeper during inspection

   If a problem pops up during your inspection, it’s always a good idea to take a closer look. Something that may seem like an easy fix may just be a symptom of a much more expensive problem. Pay close attention to any inspection items and get advice on what other related issues could be waiting for you.

10. Until the paperwork is signed, negotiation can continue

    Inspections, disclosures, even learning more about the neighborhood and upcoming construction can give you more leverage in the negotiating process. Especially if a flaw is discovered during your home inspection, use it to your advantage and get a great deal. Staying under budget when buying a home gives you extra cash to add the upgrades and decor you’ve always wanted.

11. Real estate is not a recession-proof investment

    Despite what it might seem in the short run, a home’s value can be affected by an economic downturn.  In most cases the market does recover in the long run except in markets that have had widespread economic factors like in Detroit.  Luckily in the Colorado market we are still enjoying a booming market that should continue for the foreseeable future.

12. Examine both financial and personal costs of buying

    Before buying a home, think about what kind of personal and financial sacrifices you’ll have to make.  If you will have to pick up a second job or quit going to school in order to afford the payments it may be better to wait.

13. Read HOA documents before closing 

    Maybe you are planning to make improvements on the home or can only budget based on current HOA dues. By reading through the covenants, conditions and restrictions (CC&Rs), bylaws and budget you will see if there is anything that could affect you in the future. Also, talk to residents in the neighborhood and get opinions on how well the HOA does its job.

14. Secure financing before being a first time home buyer making an offer

    Colorado is a competitive market. If two potential buyers make an offer and one has financing and the other doesn’t the home sale will most likely go to the one with financing.

15. Don’t spend every dollar you qualify for

    Once you secure financing it may be enticing to spend it all and get the biggest house you can but there are benefits to spending below that amount.  As a first time home buyer you will have lower monthly payments, you could even pay extra toward the mortgage each month to secure more equity, you will most likely get a better interest rate, and you will have more money for renovations.

16. Find smart money

    It is possible to find “smart money” by getting a loan through a non-profit organization that has agreements with several lenders to give first-time home buyers affordable loans. These kinds of opportunities are out there; you just have to look for them. Remember, you still have to be underwritten by the lenders, so be prepared to show your credit history and attend classes and workshops the non-profit group organizes.

17. Make sure renovations were professionally done

    Often, do-it-yourself remodelers looking for a quick fix use low-quality materials that turn into a problem for future homeowners. Make sure any renovations were done by a professional contractor using quality materials that are meant to last. When inspecting look for signs of low quality materials and amateur work.

18. A creative bid strategy helps ensure a good deal

    You can make an offer on a home and add a contingency that you will pay $1,000 over any other competing offers up to a maximum price point. A creative strategy like this can be very effective in today’s market, especially when there are competing bids for the property.

19. Don’t overlook the landscaping

    Landscaping is a huge expense.  Though it may seem great to have fountains and lush gardens, the upkeep of these can be very time intensive or costly if you have to hire a landscaper.

20. A higher price point might save money over time

    Not everyone has the time and money to work on renovations. In some cases it may save you to spend more on a house that already as the upgrades that your desire.

21. Low-balling doesn’t always pay off

    In a competitive market like Colorado, low offers or offers with expensive contingencies can leave you being out bid time and time again. There is nothing more frustrating than finding a home you love and losing out to another bidder. Make sure you are making an offer that is enticing to both you and the seller.

22. Change a bid strategy that’s failing 

    You may find that even when you are bidding close to the asking price you are still losing out to other buyers.  If that happens, adjust your strategy.  It may be that bidding just a little more will put you in a more competitive position.

23. Save money for a down payment

    Many first time home buyers have access to low down payment mortgage options.  Buying a home is a negotiation. The more leverage you have the stronger your offer will be.  Having a larger down payment will qualify you for better mortgage options and give you more leeway in the negotiation process. 

Also see "What to look for when buying a home"

Being a first time home buyer can be scary, exciting, and a rewarding experience. If you plan ahead and enlist the help of professionals you will find a home that suits your needs and provides you with a valuable investment.