November 11, 2015: We grow up and fly the nest. We meet that special someone and start a family. We work hard and save up and look to turn our sweat and success into something tangible and lasting. The paths we take in life so often lead to a common crossroads, where you look up ahead and can see yourself becoming a proud homeowner.
Yet for many of us, we arrive at this intersection feeling like proverbial spring chickens, inexperienced and unsure how to cross. What now?
Help is here. In partnership with Allstate, we’ve spoken to experts in real estate and personal finance to round up six important tips -- many drawn from personal experience -- for first-time homebuyers starting their house hunt. With this advice in mind, you’ll get to the other side with confidence.
1. “Keep your credit in check.”
Approaching the homebuying process -- and it is a process -- begins with sizing up your finances. (Spoiler alert: you’re going to be writing some checks!) Your financial footing, including the state of your credit, plays an important part in obtaining a home loan: lenders look at the score on your credit report to determine if you pre-qualify (more on that later). Personal-finance expert Morgan Marie Quinn suggests looking into your credit score several months before you hit the open-house circuit. She explains that you can pull your credit report for yourself once a year at no cost from each of the three major credit bureaus via AnnualCreditReport.com.
If your credit outlook has room for improvement, consider postponing your home purchase by a few months, giving you time “to fix things up,” Quinn says. “That means paying your bills on time, paying down debts and correcting any errors on your reports.” Another of Quinn’s pro tips: space out your three free annual credit checks as you work to boost your score, so you can assess your progress. “People underestimate how important their credit score is in this process, and how much money it can save them.”
2. “Get pre-qualified.”
With your credit in tip-top shape, next you’ll likely want to zero in on the budget range for your home purchase. “Before you even start shopping, you need to know how much a lender is willing to extend [to you] to purchase your first home,” says Quinn, who bought her first home with her husband at age 27. By meeting with mortgage brokers -- at your own bank as well as others -- and getting pre-qualified for a home loan will help to clarify that picture. While you may have done your own calculations, “only a lender can give you a truly accurate figure,” Quinn says.
While you’re at it, chat up mortgage brokers about the range of loan offerings. First-time homebuyers often overlook loan options that may suit them well, including federally backed loans and special state programs, Quinn says. “Also, the interest rates are generally different for first-timers, as are the down payment requirements.”
3. “Sign up for email listing alerts.”
OK, your credit is tuned up and you have a price range in mind. We’re guessing by now you’re pretty eager to, you know, go see houses? To scour the inventory like a pro, real estate marketer Jason Fox suggests seeking out home-search tools online such as email alerts about new listings. In signing up for these notifications you can filter for price, house size, community interior features and more, Fox says. “New homes that match your criteria [are] automatically emailed to you … often multiple times per day.”
4. “Leverage your Facebook community.”
Many first-time homebuyers opt for the assistance of a real estate broker to help navigate the process and negotiate on their behalf. If you’re considering hiring one, Fox also suggests using social media to find the right real estate agent for you. Tap into the collective experience of your online community, Fox says, “by asking who they used or who they recommend. Or use LinkedIn to ... find an agent that is connected to someone you know.” Narrow down the results by checking online reviews of the agents on sites like Zillow, Yelp and Google+, Fox adds.
5. “Don’t be afraid to look outside the box.”
Fox points out that, according to the National Association of Home Builders, 72 percent of homebuyers say the surrounding neighborhood is a top reason (along with price) for choosing a house. So it’s important to keep in mind that you’re shopping for a neighborhood, too -- and the schools, parks and shopping that come with it. “It will benefit your online home search immensely if you find a real estate website that offers extra features in their home search such as Walkscore and school information. You should also consider visiting sites like greatschools.org and areavibes.com for school and neighborhood rankings.” And searching forsalebyowner.com may surface what Fox calls “lesser exposed homes for sale” -- which, in a competitive market, can give you an edge over other buyers.
6. “Don’t bite off more than you can chew.”
Perhaps most important of all: start your home search by being honest with yourself about the costs of homeownership, as well as what kind of homeowner you’ll be. “We had all these grand ideas that we were going to be fixing up the house ourselves and taking care of the yard,” Morgan Quinn says. “Yeah, it was going to be hard work, but we were going to be homeowners! And that was just not realistic for the kind of people that we were at the time. We were not going to be sitting at home on the weekends, fixing up the house. … We ended up having a gardener to help us, or hiring people to come fix things for us.”
Michael Gardon of The Simple Dollar says that to ballpark upkeep costs, “A good starting point is to assume an additional 40 percent extra on top of your monthly mortgage payment.” Got your eye on a house? Question the seller about heating and cooling bills, and a home inspector about estimated repair costs. “When you have hard numbers, it’s easier to figure out if all the extra expenses still fit in your budget.”
Quinn adds that while it's tempting to buy at the top of your budget, "Extending yourself financially just to make the mortgage payments is a recipe for disaster. ... I actually made this same mistake when I purchased my first home. I bought a home close to the top of my price range, only to discover my property tax was going to add over $500 a month to my payments. Ack!”
In the end, homeownership should make life better, not harder. “Choose a home that meets your needs, in a neighborhood you can enjoy,” Quinn says, “and with a payment that affords you more than Top Ramen every night.”