A Complete Guide for First-Time Homebuyers: Everything You Need to Know in 2024
Buying your first home can feel like a monumental task, especially in a shifting market. The National Association of Realtors (NAR) settlement has brought several key changes, affecting commission structures and negotiation power for buyers. Coupled with falling interest rates, these adjustments can impact how you approach buying a home.
This guide covers what you need to know, from preparation to closing, with current considerations for first-time homebuyers in September 2024.
Step 1: Financial Preparation
Before diving into home shopping, getting your financial house in order is essential. This step ensures that you're well-positioned to secure a mortgage with favorable terms.
Check Your Credit Score Mortgage lenders use your credit score to assess your reliability. A score of 620 or higher will typically qualify you for conventional loans, but a score of 740+ will help you access lower interest rates. Consider improving your score if it’s below 680 by paying down debt or correcting errors on your credit report.
Set Your Budget Knowing how much home you can afford will help narrow your search. Generally, your mortgage payment (including taxes and insurance) should be no more than 28-30% of your gross monthly income.
Save for a Down Payment Conventional loans usually require a down payment between 3-20% of the home’s price. FHA loans, available for first-time buyers, often allow as little as 3.5%. In addition, you’ll need funds for closing costs, which can range from 2-5% of the home's value.
Step 2: Research and Preparation
Once your finances are in order, it’s time to start your home search. This involves educating yourself on the market, but most importantly, hiring a professional who will help you navigate the entire process.
Understand the Local Market Real estate markets vary by location, so it’s important to study the market in which you intend to live.
Compare Mortgage Lenders Shopping around for lenders can help you secure the best terms, especially now as interest rates have dropped.
Hire a Real Estate Agent Despite changes from the NAR settlement, an experienced agent remains a valuable asset in your home-buying journey. Having the right agent on your side is crucial, especially during the negotiations.
Step 3: Finding the Right Home
With your budget set and a team in place, it’s time to search for your dream home. This step is both exciting and daunting, but sticking to your budget will help keep your search focused.
List Your Must-Haves Create a list of essential features (e.g., number of bedrooms, location) versus nice-to-haves (e.g., a pool, updated kitchen). This will streamline your search and help you focus on properties that fit your lifestyle.
Schedule Home Tours When touring homes, look beyond aesthetics and consider practical aspects like the condition of the roof, foundation, and plumbing. A home inspection can reveal potential issues.
Step 4: Making an Offer
Once you find the right property, it’s time to make an offer. The NAR settlement changes can affect negotiations, but the process remains largely the same.
Submit an Offer Your real estate agent will help you draft a competitive offer based on comparable sales in the area. The offer will include contingencies like financing and inspection, which protect your earnest money if the deal falls through.
Negotiate After submitting your offer, the seller may counteroffer. Your agent will help you navigate these negotiations, especially when deciding how to adjust the offer while maintaining a fair deal.
Step 5: Closing the Deal
Closing is the final step in the home-buying process. This is where you'll review and sign all the paperwork, finalize your mortgage, and officially take ownership of the home.
Home Inspection Hire a professional to inspect the home before closing. If any major issues are found, you can ask the seller to repair them or reduce the sale price.
Closing Costs Be prepared to cover closing costs, including loan origination fees, title insurance, appraisal fees, and more. These can amount to 2-5% of the home’s purchase price.
Final Walk-Through A day or two before closing, conduct a final walk-through to ensure the property is in the agreed-upon condition.
Sign the Paperwork On closing day, you’ll sign the final documents, including the mortgage agreement, and receive the keys to your new home.
Final Thoughts
With the current interest rates, first-time buyers are in a more favorable position compared to previous months. By staying prepared, working with professionals, and understanding the evolving market, you'll confidently navigate this exciting milestone.
