Life’s firsts can be exciting – first job, first car, first date and, yes, your first home. I’ll leave it to others to offer career counseling, car shopping guidance and unsolicited dating advice. But I think I can help you if you are about to buy your first home.
I’m an optimist, so let’s start with a word of anticipatory congratulations. Being a homeowner is an accomplishment. You are joining a large American club that has contributed to the foundation of our country and continues to make our communities strong.
So welcome to that club. You are entitled to feel proud. Home ownership, of course, is also a big responsibility as there is so much to it that you have to consider. For example, how much can you afford? Do you know how much your energy usage will cost – it might be worthwhile though using something like Simply Switch to help you get the cheapest energy provider to help you save as much money as possible. Moving homes is complicated because there are so many different aspects that you have to figure out. Which is why I’m happy to offer a few tips that should serve you well as you navigate your way to turning the key in the front door of your first home.
With some help from our friends at the National Association of Realtors, let’s explore what every first-time home buyer needs to know.
Homes cost a good bit more than cars, obviously, so you will probably need a home loan, aka mortgage, to pay the bill, along with a significant down payment. Still, the question remains: What price home can you really afford?
The answer depends on your income and other variables, so punch your info into realtor.com®’s home affordability calculator to get a ballpark figure of what you can manage.
In general, experts recommend that your house payments (mortgage, maintenance, taxes) should not exceed 28% of your gross monthly income. So, for example, if your monthly (before-tax) income is $6,000, multiply that by 0.28 and you’ll see that you shouldn’t pay more than $1,680 a month on your home.
Typically, online calculators give just a ballpark figure. For a more accurate assessment, head to a lender for mortgage pre-approval. This means the bank will assess your credit history and other factors, then tell you whether you qualify for a loan, and how much. Mortgage pre-approval also puts home sellers at ease, since they know you have the cash to back up your offer.
Buying a home is more complicated than buying a car or an appliance. It requires transfer of a deed, title search, and plenty of other paperwork.
So you will want to have someone you trust by your side to explain the ins and outs of the process and help you make the best decisions. Make sure to find a Realtor familiar with the area where you’re planning on purchasing. A Realtor with expertise in Midtown might not be the best choice if you’re searching in Southeast Memphis, Germantown or Fayette County – and vice-versa.
You can search on realtor.com/realestateRealtors to find Realtors in your area as well as information such as the number of homes sold. Make sure to interview at least a couple of Realtors, because once you commit, you will sign a contract barring you from working with other buyer’s agents—this ensures the Realtor’s hard work for you pays off.
It’s your first home—we understand if you’ve dreamed about the ideal house and don’t want to settle for anything less. But compromise is a part of life, right?
As a general rule, most buyers prioritize three main things: price, size, and location. But realistically, you can expect to achieve only two of those three things. So you may get a great deal on a huge house, but it might not be in the neighborhood that was at the top of your list. Or you may find a nice-sized house in a great neighborhood, but the price is a bit higher than you anticipated. Or perhaps you find a home in the right neighborhood at the right price, but it’s smaller than you ideally wanted. Don’t buy any furniture items such as living room side tables until you’ve moved in otherwise you may find it doesn’t fit or look good.
Such trade-offs are par for the course. Finding a home is a lot like dating: “perfect” can be the enemy of “good.” Or even “great.” So find something you can live with, grow into, and renovate to your taste. It’s also crucial to have a handyman on call, somebody who can repair your appliances in the case that things go wrong. Remember, a new home often means new appliances – and it’s crucial you know who can fix them.
Once you find a home you love and make an offer that’s accepted, you may be eager to move in. But don’t be in a rush. Don’t purchase a home without doing your due diligence and add some contingencies to your contract—which basically means you have the right to back out of the deal if something goes wrong.
The most common contract contingency is the home inspection, which allows you to request a resolution for issues (e.g., a weak foundation or leaky roof) found by a professional. The house may look great to you, but what if the walls hide a termite problem or there’s a sink hole starting in the back yard?
Another important first-time home buyer addition: a financing contingency, which gives you the right to back out if the bank doesn’t approve your loan. A pre-approval makes this possibility much less likely, but a pre-approval is not a guarantee.
You also might want to consider an appraisal contingency, which lets you out if your lender values the home at less than what you offered. This will mean you will have to come up with money from your own pocket to make up the difference.
The first-time home buyer tax credit may be no more, but there are a number of tax breaks new homeowners may not be aware of. The big one is the mortgage interest deduction. It’s a boon for brand-new mortgages, which are typically interest-heavy. If you purchased discount points for your mortgage, essentially pre-paying your interest, these are also deductible.
Some states and municipalities may offer mortgage credit certification, which allows first-time home buyers to claim a tax credit for some of your mortgage interest paid. Check with your Realtor and local government to see if this credit applies to you.
I’m often asked: Where are the best neighborhoods in Memphis?
My honest answer: everywhere.
It comes down to finding the right place at the right time. Your ideal neighborhood before you have children might not be your idea neighborhood when you’re an empty nester. For everything there is a season.
But once you’ve picked your new home and new neighborhood, the joy you find there will largely be up to you. If you just lock yourself behind the door before and after work, you’ll never know what you’re missing. On the other hand, if you get involved, get to know people, work with them to make your neighborhood the best it can be, you will find home ownership that much more enjoyable and enriching.