Buying your first home is a huge part of the American Dream -- and is also a daunting and potentially overwhelming process that's ripe for second-guessing everything you know. How do you know you're ready? How can you prepare yourself financially? What do you even want to buy, and where -- and what will happen if you make a mistake?
It's only natural that buying your first home would feel like a huge process: This is probably the biggest purchase of your life to date, and you're going to be paying a mortgage for up to 30 years, so you want to make sure you get it right.
Thankfully, we live in the Information Age, and there's a lot you can do to educate yourself about what it takes to become a (happy) homeowner. Here's how to get started so that you can be certain your home purchase is a good decision for you -- now and in the future.
What do you want to buy?
1. Consider the type of property It's quite possible that your lifestyle means you should think beyond the typical single-family home when the time comes to buy your first place.
For example, if you're a first-time buyer who's thinking about renting out part of your new home to help pay the mortgage, then you should look at duplexes or other multi-family units. If you plan to live in the unit yourself, you can finance it as your own property, get the same homeowners' insurance rates as owner-occupiers receive, and maintain a separate space to rent.
There are also condos and apartments, new construction and prefabricated homes, and many other options that might be a better fit for you than a prebuilt single-family home. If you need help figuring out what's available and what's a good fit, talk to a real estate agent, who can walk you through the common opportunities in your area and help you pick one or two that fit your lifestyle best.
2. Know where you want to go Maybe you've narrowed your search down to one metro area, or maybe you know exactly which neighborhood is the best fit for you. Spending some time to research the parts of town where you might be moving in and buying is a smart thing to do, even if you're positive that you already know everything about the area.
Talk to friends who live in the area and ask them what they like and dislike about the neighborhood. Ask yourself how similar your lifestyle is and whether those likes and dislikes are relevant to you. If you can, look up suburb-specific and neighborhood-specific Facebook groups where you can lurk and figure out what the neighbors are like. (Social networks like Nextdoor are also great resources, but you usually have to live in the neighborhood already before you can join the neighborhood group.)
This would also be a good opportunity to bring in an expert, like a real estate agent who's familiar with your area of interest. Agents can show you other parts of town that you might not be currently considering and can connect you with current residents if you don't happen to know any.
3. Try to predict the neighborhood's future A neighborhood that's perfect for you today might be not-so-perfect in five or ten years as people move in and out and the landscape changes. So it's smart to get an idea of what the neighborhood is like today -- and to spend some time trying to predict where it might go in the future.
Local chambers of commerce or business journals can be good resources for this kind of research. Look at the types of businesses that are most prominent in the area and do a little bit of digging into the most popular industries. Are they robust industries, like technology and health care, or are their futures less certain, like publishing? If you need to sell your home in a few years, do you think there will be buyers interested in taking it off your hands?
You should also ask about future plans for the neighborhood, like public parks, playgrounds, hiking trails, or any new businesses that are likely to emerge near you. Will it bother you to be located within walking distance of the county's largest playground, or is that a huge perk?
4. Spend the night in the area You might love the busy downtown area during the day, but you're an early-to-bed, early-to-rise type -- will all that nightclub activity be a problem for your sleep schedule? And maybe you really savor the idea of "getting away from it all" to the countryside, but are you sure that you can survive that far away from decent food delivery options?
It's wise to spend some time in the area where you want to move -- up to a week if you can. If possible, opt for a vacation rental instead of a hotel or motel when you spend the night. This will help you get a feel for the neighborhood and the people who live there as well as some of the more logistical aspects of your move, like your route to work and where you can go to buy groceries. How will your home purchase affect your daily routine -- and do you enjoy those changes, or are they causing problems? It's better to know that a neighborhood really isn't right for you before you put an offer on a home there.
5. Get some credit Quick -- what's your credit score? If you don't know, or if it's below 580, then you have some work to do before you can get ready to finance a home.
Obtain a copy of your credit report and check it for errors. Correct them. Then take it to a credit counselor and ask them for the two or three biggest-impact tasks that you could complete, then start working on them.
There are options for obtaining a loan if your credit's not the best, but every little upward tick helps, so try to get it in decent shape before you start seriously home-shopping.
6. Go big on your down payment The down payment can be a daunting piece of the homebuying puzzle for many first-time buyers, who don't have equity in their current place of residence (because they're renting) and might not have much disposable income to save.
The good news is that not every mortgage loan requires you to save up a full 20-percent down payment for your home purchase. Some government-sponsored entities (GSEs) in particular, like the Federal Housing Administration and the Veterans Administration, offer low-down-payment and no-down-payment loans that can be a good fit for first-time buyers.
That said, if you're paying less than 20 percent down, most mortgages will also require you to pay mortgage insurance on the loan. So if it's at all possible to get close to that 20-percent number, it's a really good idea to try.
There are a number of organizations that offer resources and even down payment grants for certain buyers. Find out what you might qualify for at downpaymentresource.com.
7. Consider your total monthly out-of-pocket amount You just learned about mortgage insurance, which is one additional monthly expense that you could wind up paying over the lifetime of your mortgage if you don't have a full 20-percent down payment. In addition to that, you'll need to pay for basic homeowners' insurance (and any additional policy coverage, like for floods or earthquakes), property taxes, and the interest on your mortgage loan every month.
That's not where it ends, of course: You'll need to figure out your utilities, like electricity, gas, and water (sometimes included in the total rental price of a home, so you might not be used to paying for them), plus any internet, phone, and other connectivity features you might need in your new place.
And, of course, you're going to have to deal with maintaining your home -- if your water heater breaks or you need a filter replaced, there's no landlord to call and ask for repairs. It's on you. So think ahead about how you might pay for a home emergency if (when) one emerges.
8. Understand what you can afford and get pre-approved It's probably tempting to start searching for homes as soon as you think you know what you want and where you want it -- but there's another very important component, which is what you can afford.
Try to steer clear of any programs or apps that pre-qualify you for a mortgage loan instead of pre-approving you for a loan. A pre-qualification is a less formal guess as to what you might qualify for, but a pre-approval means you have submitted all your income paperwork and a lender has decided that it will loan you money for a mortgage in a specific dollar amount. It means you can put in an offer immediately when you find your dream home instead of waiting to jump through any financing hoops.
9. Budget for other homebuying costs What are closing costs, and why would you want title insurance? The monthly price of becoming a homeowner is one thing, but there are also several other individual costs involved with the actual process of buying a home.
You'll need an appraisal and an inspection, and an entity like a title company to facilitate the closing -- all of those players are going to need to be paid, and the buyer is usually the one to fork over the cost. That might not be what you want to hear, but it's better to save now and realize you don't need the money than to be surprised in the middle of the transaction process with a handful of several-hundred-dollar expenses.
Keep your eyes open while shopping
10. Ask HOA questions Homeowners' associations (HOAs) aren't present everywhere, but you definitely don't want to buy a home that's in an HOA without understanding exactly what that means. At the very least, you'll be paying dues and agreeing to maintain your home to certain community standards, so if you're the type who likes to work on your cars in the driveway and you discover a certain neighborhood's HOA doesn't allow this, then you'll be glad you did your homework upfront.
11. Know what's fixable and what's not You'll definitely be looking at some homes that are … not to your personal taste, let's say. But before you decide to take a hard pass on a place, it's smart to understand whether the things you hate about it are easily fixed -- or whether they'd be too expensive or time-consuming to even consider tweaking. And if you're budgeting for improvements, then it's helpful to talk to an expert (like a contractor or real estate agent) about what's possible and what's really not in the home you're considering.
12. Be aware of the market If you started this process six months ago and haven't really looked at listings in the interim, then do yourself a favor and ask your real estate agent to set you up with a personalized feed from your local multiple listing service, and then have your agent walk you through the market realities today. You'll want to know that most buyers are paying 5 percent above asking price (or 5 percent below it) if that's what's happening so that you can make an educated and intelligent offer when the time comes.
13. Figure out where you have room to negotiate If you have some flexibility in terms of when to move in, then that can be a big point in your favor as a buyer -- for a seller who wants a super-quick sale as well as a seller who wants to take plenty of time to say goodbye. Talk to your agent about other concessions or benefits you can offer when you first bid on a home to sweeten the deal. Not all of them involve spending extra money, and one could make yours the winning bid on a home.
Take it to the finish line
14. Get familiar with the closing process Once your offer is accepted (congratulations!), there's still a series of obstacles to overcome before you are officially a homeowner. The appraisal, inspection, and title search will need to take place, and you'll definitely want to be there in person for the inspection. You may want parts of the home tested for elements like radon. If the inspector finds an issue that needs to be addressed, you'll need to negotiate with the sellers about what to do and who's paying, and you'll also need to decide whether or not to buy title insurance -- so if a claim on the home emerges that didn't show up with the initial title search, you're legally protected. You might need to run errands yourself, too, like tracking down any final paperwork for your mortgage loan, or visiting your bank to obtain a cashier's check for your earnest money or down payment, then dropping it off at the title company.
It's not over until you've signed a ream of papers and the keys are in your hand, so remember that on top of getting ready to move, you will need to carve out some time to take care of the last pieces of closing business.
If you've never bought a home before, take heart: You can achieve your buyer's dream, but it's going to take some work.
Thank you for interest in Truckee and Lake Tahoe properties
I would love to help you out with your search. Please fill out this form and I can reach out and work with you to help answer any questions you might have and can work with you to narrow down your search.