10 things to know before buying a first home
Eyeing your first home purchase? Consider these 10 things before buying.
1. You'll need cash.
Most home-closing costs can't be rolled into your mortgage. You may need to have as much as 2% to 5% of the purchase price on hand at closing. This is in addition to a down payment. If you're financing your home, you'll need to provide your lender with the source of your down payment and closing costs.
Carefully review your loan estimate to see how much cash you'll need at closing. Your loan estimate includes a detailed list of possible closing costs. Lenders must provide an estimate of this information within three business days of receiving your mortgage application. Lenders consider your application received when you've provided your name, income, Social Security number, property address, estimated value of property and mortgage loan amount.
If you do have the option to roll any expenses into your mortgage, keep in mind that doing so could mean you'll end up paying more interest over time.
2. You can't borrow more than a home is worth.
Your home's appraisal value may differ from the sale price. Your lender will have an independent appraiser look at the property to assess value based upon home condition, location and size. The sales price of comparable homes in the area will be a big driver of your home's appraised value.
Property appraisals are a critical hurdle in the homebuying process. Lenders want to be confident that, if you default on the mortgage, they'll be able to sell the home and get back the money they loaned.
3. A bad inspection can be a deal killer — and a lifesaver.
It's true in both relationships and home buying: When you fall in love, you may overlook important flaws. That's why a home inspection is important. A home inspection is an evaluation of the house's structure and systems by a third party. It's the inspector's job to uncover any conditions and issues.
The lender won't require a copy of your inspection. But if the inspector notes any critical issues, they usually need to be repaired before the lender will approve your loan. Your inspector and lender are most concerned about issues related to structural soundness, safety or the sanitary condition of the property.
Sometimes the seller offers to handle repairs. If so, be sure to inspect the work before closing. Needed repairs can also be a negotiation point. Instead of handling the repair, the seller may lower the asking price or provide seller concessions for you to handle the repairs after closing.
4. Honesty is the best policy.
When applying for a home loan, it's natural to want to cast your financial position in the most favorable light. But know that your lender will verify the information you provide by reviewing tax documents, pay stubs, and banking and investment account statements. You should always provide accurate information on a loan application.
5. Choose the right agent to fit your needs.
Capable real estate agents do far more than paperwork. They serve as trusted counselors who share their knowledge of the market. They perfect their process for selecting and closing on a house. They can help you avoid major mistakes while seizing opportunities.
Look for a real estate agent who has strong credentials as well as experience in the specific neighborhoods and home values that interest you. Consider these tips for finding the right real estate agent.
6. Buy before you start your own business.
One of the most important factors in a mortgage decision is your income history. Lenders require a two-year history of your income and employment. So, if you've been employed less than two full tax years, you may have a harder time qualifying for a mortgage.
If you're thinking of starting your own business, consider postponing the venture until after the purchase of your home. Your income history may look volatile and include some dry patches for a time after you leave the corporate world.
7. Don't add new debts before applying.
If you're getting ready to buy a home, it's not the time to treat yourself to a new car. You want lenders to be confident that you can swing a mortgage payment. The more debts you have, the more doubts they'll have. New debts can also increase the amount and complexity of the paperwork you have to provide. Pare down your debt and save those big purchases for after the dust has settled on your move.
8. Dig in to property taxes and homeowners association fees.
These can be two of the biggest drivers of your ongoing cost of homeownership.
Property taxes are generally unavoidable, but the amount can vary depending on where the home is located. With a little research, you may find that two houses in roughly the same part of town have significantly different tax bills because of the way boundaries are drawn. House and lot size, along with pools and other structures, can affect property taxes as well.
Homeowners association fees, on the other hand, can be avoided altogether by choosing a neighborhood that doesn't have them. Keep in mind, though, these fees may cover things you find valuable — community pools, tennis courts, clubhouses, landscaping and maintenance standards to help keep the neighborhood looking nice. A well-kept neighborhood can help maintain home values for resale purposes.
9. Prepare for big spending after move-in.
Particularly for a first-time homeowner, the first few months after buying a home can be a major cash drain.
This is especially true if you're moving from an apartment or small rental to a larger home and want to fill empty rooms. Add the basics you'll need to get a home up and running — yard tools and equipment, window treatments, ladders, appliances and more — and it can put a strain on your wallet.
To minimize that burden, plan ahead to make sure you'll have a healthy amount of cash left after paying for the closing costs and down payment. The bottom line is to make a budget and stick to it.
10. Ask about mortgage servicing.
When you're choosing a mortgage company, ask how it services the mortgage after you close. How are monthly payments handled and insurance and property tax bills managed?
While it's common practice to sell the servicing after the mortgage is originated, you'll want to know who you'll ultimately be dealing with for the life of your mortgage. After all, it could be a relationship that lasts many years. So, you don't want to be stuck with a company known for weak customer service and heavy fees for basics such as making electronic payments.
The USAA Advice Center provides general advice, tools and resources to guide your journey. Content may mention products, features or services that USAA Federal Savings Bank does not offer. The information contained is provided for informational purposes only and is not intended to represent any endorsement, expressed or implied, by USAA or any affiliates. All information provided is subject to change without notice.