First-Time Homebuyer Tips—And Mistakes to Avoid
Homeowners who aren't familiar with the buying process can often benefit from a few first-time homebuyer tips. It can help to know what they're getting into. Steps in the homebuying process can vary from state to state and can depend on local custom, but there are basically only five: an agent, find a home, get a loan, negotiate, and get a home inspection. They don't necessarily happen in this order.
Hire an Agent
- An agent can send you listings directly from MLS that fit your parameters.
- Agents often know of new listings that are about to hit the market before they do.
- You can burn the agent's gas and not your own when you travel about to tour homes. Some agents will even preview homes for you.
- An agent can generally spot overpriced listings and advise you accordingly.
The National Association of Realtors indicates that 16% of buyers reached out to an agent first in 2019 before doing anything else, but this is significantly less than the number who started by searching for properties online—44%. But ultimately, 89% of buyers ended up purchasing their homes with the assistance of an agent or broker.
Find a Home to Buy
Finding the right home is not always an easy task. You probably won't want to schedule more than seven homes at a time because any more than that will make your head spin.
Most buyers do a lot of research before ever stepping foot in a home. They spend an average of six to eight weeks trying to figure out where they want to live, according to the National Association of REALTORS. Most buyers end up buying a home after two or three home tours once they've selected a neighborhood.
Get a Loan
It's not always necessary to have a mortgage broker or bank lined up before buying a home, but it's smart to get loan preapproval in advance. Preapproval isn't a guarantee that you'll ultimately get the financing, but it lets you know for sure how much home you can afford.
Many sellers won't look at an offer without some assurance that the buyer can get a loan.
FHA loans are popular first-time buyer loans because the minimum down payment requirement is much less than a conventional loan, as low as 3.5% of the purchase price. But conventional buyers tend to get priority with REO banks if you're thinking about buying foreclosures.
You can ask your agent for a referral to a mortgage broker or check with your own bank or credit union. What's most important is that you compare the types of mortgages available to you and shop for the best terms. Don't zero in on just the lowest interest rate because rates can vary considerably between fixed- and adjustable-rate loans.
One or the other might be much better for your personal circumstances overall.
Negotiate the Offer
Buyers sometimes make the mistake of comparing the sales price of a home to other homes they've seen, but this can be a mistake. Sellers can ask any price they like, and it doesn't mean that the home will actually end up selling at that price.
An agent can provide comparable sales and pending sales. Comparable sales are similar home types in the same condition and location that have sold within the past three months. A comparison is made based on location, age, lot size, square footage, style, and features. Exact comparable sales are rare, but the differences are weighed to establish whether they add to or reduce the sales price.
Pending sales will become the comparable sales by the time your home closes.
Keep in mind that you might have to pay over list price in a seller's market when many buyers are vying for the same inventory. Your agent can give you a reasonable price range and help you manage your expectations. A good buyer's agent knows that there's always more to an offer than its price, but the price is paramount.
Do a Home Inspection
In some states, a home inspection is conducted before buyers make a purchase offer. It's a contract contingency in others. A contract contingency means a buyer has the right to cancel the contract if the inspection turns up problems.
You might not want to be locked into buying a home that has a faulty foundation, for example.
Sellers generally aren't required to make repairs if problems are discovered during a home inspection. The inspection is performed for the buyer's edification—forewarned is forearmed. But sometimes a seller will agree to repair or reduce the sales price rather than blow the deal when a buyer makes a Request for Repair.
National Association of Realtors. "Highlights From the Profile of Home Buyers and Sellers." Accessed March 27, 2020.
Consumer Financial Protection Bureau. "Get a Prequalification or Preapproval Letter." Accessed March 27, 2020.
HUD.gov. "Let FHA Loans Help You." Accessed March 27, 2020.
Consumer Reports. "How to Find the Cheapest Mortgage." Accessed March 27, 2020.
New York State Department of Taxation and Finance. "How to Estimate the Market Value of Your Home." Accessed March 28, 2020.