First-Time Buyers: Key Considerations When Purchasing Your New Home

We can imagine, or rather certainly find data, that getting your first time was never a piece of cake. The contemporary real estate market is, sadly, no exception. Homebuyers, first time or otherwise, face a particularly challenging market in 2024 due to inflation and market instability. Let's look at some numbers and statistics - home prices are now averaging $439,000 in the US, and mortgage rates are lingering around 7%. This is markedly more than in previous years. 

But the financial aspect isn't the only one to consider. Making sure you're not buying a home that you'll need to sink further resources into is always a good idea. Then there's considering the neighborhood, doing the necessary renovations and getting a grip on how much your home will cost in the future, in terms of maintenance.

All of these considerations about getting your first home sound like a lot of work, right? That's because they are and this is just a quick overview and the tip of the proverbial iceberg. There will likely be even more things to think about as the situation progresses and you actually get to buying your home. 

In this piece we aim to give you a quick overview of essential things to think about when you're embarking into homeownership for the first time.

Key Considerations When Buying a New Home

Let's get right down to it - there really is an almost infinite number of considerations when you’re buying your first home. We’ve decided to generally group them into the subsections you’ll find below: finance, real estate market, location, home inspection and repairs and upgrades.

We are aware that what might be important for you might be an entirely different thing but this is a general guide we believe everyone, or almost everyone should go through when they’re buying a home. 

a) Finance: How you’re actually going to buy your new home

Here’s a big shocker - how you’re going to fund your new home depends on your financial situation. Before you find your dream home and set your heart on it you'll first need to look into how your finances stand. In case you have enough money ready to make the purchase for your first home then you can skip this section, you lucky person you.  

The likely scenario, however, will be that you will need to take a mortgage. Taking out a mortgage is a long and complicated process involving many policies from your financial and many financial decisions we simply don’t have the space to go into here. However, there are two most important factors to consider - your credit score and your debt-to-income ratio. 

Your credit score is basically a grade you get for your financial responsibility - paying your debts on time, your savings account, job security all go into your credit score. You should aim to have a credit score of at least 620. This is the threshold that usually goes for a conventional mortgage. A higher score can secure you better interest rates.

Your debt-to-income ratio is the percentage of your income that will be eaten away by your debts. Ideally, your debt-to-income ratio should be under the 45% mark. Meaning your total monthly debt payments, including your mortgage, shouldn't exceed this threshold. This ratio isn't just something a bank is likely to impose on you, it can also help ensure you won’t be overburdened financially. If there's one part of your financial help we would like to stress as especially important it's this one. 

Also be aware that the costs will keep racking up when buying your first home - there's also property taxes, homeowners insurance, and potential private mortgage insurance (PMI) (if your down payment for the mortgage is less than 20%). Then there's closing costs, which typically range from 3% to 6% of the loan amount. All in all, getting your first home is a financial hydra, you pay one expense and two others pop up in its place.  

b) Understanding the Housing Market

Though general tendencies do exist there are no unified and singular real estate conditions you should be aware of because the real estate market depends very heavily on where you are in the world. You will need to get to know the current trends in your chosen location if you want to make an informed decision about buying your first home. 

So, our advice here is - make sure you do your housing market homework thoroughly. When you choose your area of interest, dig into it in every detail possible. 

Let's say you've chosen a competitive market for your new home - in that case be prepared to act quickly when you find a home that meets your criteria and to pay more. 

On the other hand, if the housing market is favorable for you in the area you choose, you're likely to have negotiating power - do not be afraid to apply it. 

Also, it would also be good if you make up your mind on things you feel ok about compromising on. Maybe it will be the size of your home, maybe a bedroom or some storage space. Regardless, make sure you know what you're not giving up and what ground you are ready to give.

c) Evaluating Neighborhood and Location

Now let’s look at the actual day-to-day life you’ll be leading in your new neighborhood. We assume that when you’re buying your new home you intend to live there for a good long while - so advise that you choose your location so that it fits your needs and lifestyle. 

It’s always a good idea to think about how close your work, school, grocery stores, parks, and healthcare facilities are to your new home. You might prefer the commute or you might not, that’s beside the point. You should make sure that the home you want fights your needs whatever those might be.  

Then there’s another group of factors: crime rate, safety, culture venues and sport facilities. All of these are a factor in the value of your home when you’re buying it and will be a factor if you want to sell it. ?

Now that we’ve mentioned potentially selling your home, let's go back to schools for a minute. Local schools matter more than you probably know, since homes in top-rated school districts tend to hold their value better over time, which makes them a worthwhile investment. 

d) Inspecting the Home Thoroughly

Among the several many costs you'll have the exquisite joy of paying when you buy your first home, hiring a certified home inspector should not be the one to try and save money on. The job of a certified home inspector is to evaluate the structure, foundation, roof, plumbing, and electrical systems of a home you’d like to buy. These are all core things in a home and you should accept no compromises in this regard. The results of the inspection could tell you if that’s a home you’d want to buy right now or run for the hills.

Even if the home you choose seems to look new - do not be fooled.  A home might look new or well-made but you would be shocked at finding out how many problems a nice facade can hide. An inspection is the only way to avoid buying a problem house that can lead to a very literal financial misery.

Once you get your home inspection you’ll know if you’re getting a ruin with a fresh coat of paint or a decent house. You’ll also have the option of requesting a price reduction if the home inspection is not favorable for the seller. 

As a final word of advice on this front, if you haven't seen the 1986 movie "The Money Pit" make sure you watch it ASAP and take it as a cautionary tale, or better yet a documentary?.

e) Planning for Future Maintenance and Upgrades

Once again, if you're buying a home, we can safely assume you plan to live there. Every home, whether new or old, requires ongoing maintenance and there is always something to be repaired - especially if you choose a house.

This also depends on your interests and wishes. In case you want a smart home and you also have a soft spot in your heart for older homes you'll be in for another significant expense. If you're wondering how we thought of this particular example, we'll only answer - don't ask us how we know. 

Then there are future upgrades like remodeling the kitchen or adding energy-efficient windows. This can and will significantly increase your home’s resale value and your financial strain. To be perfectly honest, not all upgrades are made equal - some will give your home more value others less - we leave that up to you. 

One good way of taking care of this is planning ahead for these potential expenses will help you avoid financial strain and keep your home in top condition for years to come.

Endnote

We have only covered these very important aspects of getting your first home in general. All of these fields will require more attention and effort from you, once the time for them comes. 

It is also worth mentioning that the entire process of buying a new home is usually lengthy. It can take several months and, in some cases, even years. It's always a good idea to stay patient and resilient throughout the whole ordeal. 

And once again, watch " The Money Pit" we're sure you'll get a laugh out of it, if nothing else.