Buying a home will probably be the single largest purchase you make in your lifetime.
No pressure there right?
I mean, It’s only a 30 year loan term.. No big deal.
Let’s face it. No matter who you are, buying your first home or investment property is a down right scary, exciting & often times frustrating process. The housing market is competitive. You often have to make snap decisions on properties and it misleads a lot of first timers into making decisions based on impulse, gut feeling and perhaps most damning of all… emotions.
I get it! It’s easy to fall in love with a property or get caught up in bidding wars before you’ve really had a chance to investigate the property or educate yourself properly.
That’s why I’ve reached out to our amazing panel of experts to ask them the following question:
“What advice would you give to first time home buyers / investors so they can purchase their first property with confidence?”
Included in our list of experts are seasoned real estate agents, flippers, landlords & personal finance masters. I figured, If anyone could help me compile a list of helpful advice for first time investors and buyers these are the types of experts I wanted to hear from!
So here it is folks, The best advice for first time home buyers from some of the best in the business.
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I have to admit…
I felt a little bit guilty trying to distill all of our experts great advice into what essentially boils down to 10 bullet points. If you are serious about buying your first property, I strongly encourage you to take some time and read through everyone’s responses. There is some seriously awesome information here!
Below you’ll find all of our experts who contributed to making this article possible. You can click on a name below to jump to that persons response or just scroll down to take it all in.
Aaron – ThreeThriftyGuys.com
Realtor gets paid by the seller
This is something that surprised me when I bought my first home – but it’s worth noting. Your realtor (even though helping you) is getting paid by the seller. It ultimately benefits them when a home sells at a higher price.
20% down is huge
If you can manage it – save up for the 20% down when you go to purchase your first home to get rid of PMI. This will pay huge returns in the long run and help you pay down the house faster.
The ugly duckling
Sometimes it pays to purchase a home that is an ugly duckling. Many people may pass these over in the listings (due to poor photos, etc), but it may just take a little TLC and minor fixes to spruce things up. New light fixtures and door-knobs / cabinet handles can help bring a home into the present. If it’s a decent neighborhood and the inspection checks out – it could be worth the investment
Check the attic
One the mistakes a home inspector made when they visited our soon-to-be-home was to neglect checking the attic. Because they (ultimately it was on us too for not insisting they check it more thoroughly) didn’t do the due diligence to check the R-values of our insulation, we ultimately paid for this a year later after purchasing the home from an ice dam that caused thousands of dollars of damage.
Aaron Everitt – EandStile.com
1) Get a mentor. This is one of the easiest yet most important steps when first buying a property. It doesn’t matter whether this mentor is a parent, co-worker or even an older friend, at the end of the day you just need to have someone that has plenty of experience in purchasing property. When speaking with your mentor, pick their brain and try to learn from all of their experiences so you don’t need to make the same mistakes.
2) If you’re living in an area that can get cold in the winter, make sure to check insulation within large rooms and around fireplaces. The areas around fireplaces tend to be a bit worn and old, so it may be a good idea to replace the tiling. New tiling around fireplaces can not only help retain heat, but also adds a sleek modern touch.
Andrew Kilburn – Clara.com
1.) Set aside more cash than just your down payment – In addition to the down payment money to buy a home, you will need to pay for the closing costs associated with getting a mortgage. While your lender will typically charge an origination or lender fee, there are many parties involved in a home financing that also charge fees. Other fees come from various third parties like the escrow company, the appraiser, the title company and the county recorder where your new home is located. Your lender will provide you with a Loan Estimate when you apply for a loan that will give you an estimate of what these fees will be.
2.) Take the time to get pre-approved for a mortgage before you shop – Being pre-approved with a mortgage lender does three big things for you as a home buyer: 1) It helps you set your budget so you don’t waste time house-hunting; 2) It can make you more attractive to sellers; and 3) It shows real estate agents that you’re a serious buyer. With my company, Clara, you can apply online in about 10 minutes from your phone.
3.) Make sure you choose your lender – No one can force you to go with a certain lender. In fact, doing so is illegal. This is true even if you’re pre-approved with one lender or have an accepted contract. It’s also true even if a real estate agent is telling you differently. What lender to go with is 100% your choice and good real estate agents support their clients’ interests, not their own. Be wary of people pushing you too hard for what they want. Take a step back, and make sure, your choice is aligned with what’s best for you.
Anna Polinsky – Boston Realtor
1.) The first most important step is to make sure you have a pre-approval letter from a lender before you start searching for properties. If you don’t have one ready and you want to make an offer because you just found a place of your dreams! And there is a short due date for offer submission, this will put you at huge disadvantage compared to other offers – seller might not even consider looking at your offer.
2.) When searching for properties, it is helpful to pick properties that are below your maximum budget. This will give you a power for negotiation in case there are multiple offers and you have to go above the ask price in order to win a deal.
3.) Working with a broker will save you time, effort, and frustration to find a place that you are looking for. In addition, it costs nothing to a buyer to work with a broker because a buyer’s broker is being paid by a seller.
Brandon Turner – BiggerPockets.com
Nasty locations breed nasty tenants! Don’t buy in a location where nice people want to live. You can always improve a property – you can’t usually improve the neighborhood!
Find out what other people in your area are doing to achieve success through real estate, and copy them. For example, maybe flipping cheap houses is a great strategy in your area. Or maybe high-end rentals. Or maybe it’s AirBnb? Connect with local investors and pick a strategy that works great in your market.
Do Your Math
Real Estate is different from most other investments because of the incredible ability to “predict” your future. Of course, it’s not a perfect prediction, but by knowing how to run the numbers on your investment, you can maximize your odds of success by estimating your monthly cash flow and your immediate equity before ever buying the property. Don’t buy a property without fully running the numbers.
You don’t have to have a lot of money to invest in real estate, but if you don’t have the cash you’ll need to get creative. Study numerous different financing methods so you can match the deal with the best form of financing. Hard money, bank loans, private notes… these are strategies that can work, but only if you understand the right use case for each. So study up!
**Be sure to checkout BiggerPockets’s Ultimate Beginner’s Guide to real estate investing!
Carrie Benuska – CarrieBenuska.com
1.) Make sure you are connected with a great Realtor who is connected in the community and has a history of successful purchases. Your Realtor can really impact your odds of getting the property, so choose wisely and listen to their advice.
2.) The best way to start is to just start. Writing your first offer is the best way to educate yourself and learn the process. You might need to lose a few in order to get the confidence to write the kind of offer that will be accepted.
3.) Concentrate on finding a home with good bones. Better to buy a quality home that is in original condition than a poorly constructed house that looks good on the surface.
4.) Location, location, location. If you buy a good home in a good neighborhood, you can’t go wrong. Even if you pay a little too much, you will recoup your investment over time.
**The best place to reach Carrie is over on her Facebook page.
Clare Sleeman – TheHouseShop.com
Budget for the other costs involved in purchasing a property
It’s easy to do, get caught up in the excitement of buying your first property and make the mistake of forgetting to plan for the other costs that are involved when purchasing a property. Many first time buyers are forking out more than they expected which often causes their parents to cover these costs for them.
Mortgage Arrangement and Valuation Fees
Mortgage arrangement and valuation fees are the most forgotten about by first time buyers, according to new research from Barratt Homes, which has revealed that 18% of those surveyed admitted to not knowing that these costs were involved.
The survey also showed that 73% of first time buyers will overspend than what they have budgeted for costing them £2,000 on average. Only 1 in 5 first time home buyers are accurately saving the correct amount for these services, and overall they were found to undervalue specific costs by an average of £605.
Once you finally get those keys in your hand you will need to have buildings insurance in place. This will cover everything that is nailed down in your new home such as the walls, windows; roof, fitted kitchen etc and everything else falls under contents cover insurance. Taking out this insurance cover is a must as it will protect you against fire, flooding, storm damage and your belongings will be covered against theft.
It is best practice to get the property checked over by a surveyor before you part with your hard earned cash, so that you can identify any major structural problems that might be present. The price of surveys can vary between £250 to a full structural survey from £600 or even more. Knowing the lay of the land before you purchase your new home will save on repairing problems later on.
Initial Furnishing and Decorating Costs
If you’ve previously lived in furnished rental accommodation or at home then you will also need to invest in some furniture, so make sure you have kept some cash aside for these costs. You would have shelled out a lot of money in the months leading up to the exchange and ownership of your first home, just make sure there is some left for you to be able to live in it!
A survey by Terry’s Fabric has estimated that on average it costs £15,215 to furnish a 3 bed house from scratch which included furniture, appliances and even the small electrical items such as the toaster.
Deacon Hayes – WellKeptWallet.com
1.) My best tip would be to avoid being house poor. Too many first time homebuyers rely solely on the amount they are pre-approved for by a mortgage lender and don’t really consider what they think they can afford. Don’t make yourself house poor. Make sure your house payment is less than 40% of your monthly budget.
2.) Don’t forget about the other costs of homeownership. Besides just the monthly mortgage payment, you’ll have taxes, insurance, and maintenance costs. You might also find that as a first time homeowner, you need to purchase a few things to maintain your property, like a basic set of tools, yard care equipment, and more.
3.) Don’t rush your home purchase. If you’re gut tells you something, you should listen to it. Too many first time homeowners rush into buying a home and end up with something they are not happy with.
Edwin C. – CashTheChecks.com
1.) Don’t assume a 30 year loan is all you can get. Take a close look at a 15 year mortgage, the interest rates are lower and you’re done with your mortgage in half the time.
2.) Budget for closing costs. It’s not just the down payment you have to save up for, there are other fees such as a credit check, appraisal and recording fees, and a home inspection.
3.) Don’t buy a house until you have saved up 20% for a down payment. Paying for PMI (private mortgage insurance) sucks.
Elaina Johannessen – LSSMN.org
Check your credit
Take care of any issues and aim for a credit score of 700. If your score is lower than 700, work on building up your credit before attempting to obtain a mortgage so you can get a good interest rate on your loan. Dispute errors and take care of any issues, like old debts. You have to pay for your score, but you can get your credit report for free once a year from all 3 credit bureaus from AnnualCreditReport.com.
Be realistic about timing
Don’t rush into purchasing a home. Make sure you have money saved up at least for moving expenses, items you need to furnish your home, and hopefully a down payment. Plus, taking your time will allow you to improve your credit if needed. The key here is to start planning as early as possible, preferably about 2 years in advance.
Choose your location wisely
Before picking out your house, find the best location for you. Think about property taxes in the area, your distance to work, and where your new home is in relation to the grocery store or your child’s school for example. Planning like this will help you save a lot of money.
Think ahead about being a homeowner
Determine what changes you may need to make in your spending, what you will be paying in homeowner’s insurance, utilities, and potential maintenance.
Don’t be house poor
Determine your budget ahead of time so you know what you can afford. Buying too much house will only set yourself up for failure. An unaffordable home can lead to accruing more debt or worse, missing mortgage payments and even foreclosure. A good goal is for your mortgage payment to be a maximum of 25% of your take home pay.
For more information, make sure to checkout our website and blog links @ LSS Financial Counseling and Sense and Centsibility
Gabe Lumby – CashCowCouple.com
Purchasing a home comes with ongoing maintenance costs no matter how good of shape the property is in when you purchase it – This is tough to wrap your head around at first, but it is wise to make sure you budget for repairs and regular maintenance items on your house. We would typically recommend budgeting a couple hundred dollars a month to keep in a savings account for when repairs pop up.
Don’t spend your entire savings on a down payment – It is tempting to spend most of your savings on your down payment and closing costs, but try your best to keep your down payment funds separate from your emergency funds. If you do have to deplete most of your savings to make the purchase a reality, you should work hard to replenish your savings ASAP.
Make sure you plan on living in your first property for at least five years – Life changes quickly and no one knows the future, but if you are sure this will be a short term home, it may be a better financial decision to continue to rent until you can plant some more permanent roots. If you don’t plan on staying for quite a few years, you could lose money from realtor fees (usually 6% for the seller) and a drop in the overall market value for real estate in your area.
Jacob Irwin – MyPersonalFinanceJourney.com
Start with a high-quality real estate agent.
To me, the most important aspect of buying a home is to have a trustworthy, well-connected real estate agent. This person will serve as the “hub” of your home buying team. A good agent can readily provide recommendations for a loan broker, inspectors, lawyers, and everything in between.
Buy less of a home than you can afford.
When I purchased my current home for $250k, I was encouraged to buy a much larger house by nearly with which I interacted. However, 30 years is a long time to pay a loan, and the less you have to commit each month to your loan, the more you can invest for financial freedom.
Avoid home loans with changing rates.
Adjustable rate home loans were one of the causes of the 2008-2009 market crash. When it comes to home loans, I like 30 year fixed rate loans because I know exactly what I’ll need to pay each month.
John Fedro – MobileHomeInvesting.com
Join the club:
Literally and figuratively. Join a local real estate investment club to network with others. Also understand that there are (and have been) a lot of other normal people traveling the same investing journey you are going down. These investors will deal with a lot of the same BS you are about to deal with.
Paid or unpaid, having someone you can call in real-time to get some questions answered can be priceless. This person obviously should have significantly more experience than you do.
Lean into discomfort:
After closing my 30th deal I remember looking into the mirror and saying to myself “I should’ve accomplish this goal a lot sooner”. When you’re starting out you will be learning a lot of new things, skills, and even having to reprogram some bad habits. You will absolutely not be the same person you are today as you will be in six months if you are actively investing and working with society. Become a real estate investing education sponge, learn what must be done daily, and do it promptly and proactively.
Jonathan Verhaeghe – JoneyTalks.com
Total cost of ownership
This one is a major one, it s so easy to fall in love with a first house that you just want to run off and make an offer. Take the time, breathe and make sure you have everything taken into account : Can you actually afford the house? What will be your monthly mortgage to the bank? Will the house need maintenance – repair the roof within two years? Will the co-housing association refurbish the facade? Does the house need immediate refurbishing? What about furniture? – If it is your first house, it is easy to fall in the trap of buying all new : new bed, new furniture, new decoration,… either take it slow with purchases or deduct a provisional amount from your budget to allow for these purchases. And let´s not forget property insurance, taxes, homeowners association dues, higher electric and water bills are a few examples.
Go to your bank first
This is what I personally have done with my first apartment, the idea was to know how much house/apartment I could look for on the market and target my searches. I was surprised to hear that not all home chasers were seeking mortgage approval prior to go to visits! What if they found a dream house and found out they could not afford it? What a disappointment!
Check the market trends
If possible time your purchase well so you are in a buyer s market instead (offer of housing is abundant) of a seller s market (scarce housing market), this typically varies within a year or there are long-term trends showing up depending where you live.
Plan for the future
Is this house your finally destination or is it a first purchase/investment? What would be the resale value in a couple of years? You are maybe single or a couple and plan to either get a partner or kids. Will you want to stay in the same area or move somewhere else? This one is really long term but it might be worth considering it.
Crucial! Go to see the house with a friend or a family member that is experienced in inspecting all sorts of technicalities. The house will be at its best when on sale and unfortunately there might be hidden flaws in the house covered by paint/carpet or access (humid basement?). Check the faucets/every corner of a room, the ceilings, look at humidity spots in the bathrooms, is the visit on a quiet day or on a busy evening?
Joseph Hogue – PeerFinance101.com
I love real estate and have owned my home and rental properties for almost two decades. There are some pitfalls you need to avoid.
1.) Try not to exceed 25% of your disposable income as mortgage payments. This will give you some flexibility in case of income or rental loss. You don’t want to lose the property to foreclosure after years of making payments.
2.) For investors, only buy homes in neighborhoods in which you would want to live. If things don’t go well, you may have to live in your rental. Living in the property for a couple of years can also help avoid capital gains taxes when you sell.
3.) Save enough to make at least a 20% down payment so you can avoid paying private mortgage insurance (PMI) which can be as much as 1% of the home’s cost each year.
4.) Watch out for this new home buying scam! Hackers are sending out fake wire instructions at the last minute before closing. The instructions look legit and may even come from the same email address as the closing agent but with new receiving account numbers for the down payment. Always verify new closing instructions with a phone call to the closing agent and your real estate agent.
Kaye Thomas – Fairmark.com
For people who are in the increasingly common position of buying a home that is governed by an Association:
1.) Request a copy of the rules and regulations, and scan them for anything that may be a problem (pets, parking, etc.).
2.) Skim through as much as you can of the Declaration (also called the CCR, for covenants, conditions and restrictions) with the same idea: anything there that will cause heartburn?
3.) Ask about anticipated capital expenditures. If any big ones are coming up, does the Association have a reserve fund large enough to cover the cost?
4.) Try to find out how people feel about the property management company, if there is one, and the governing Board.
Kendra Clarke – StreetEasy.com
Find a Buyer’s Agent – A buyer’s agent is a real estate professional who is there just for you for no additional cost. They are someone who will understand your needs, help you navigate the intricacies of a certain area, inquire about homes you’re interested in, as well as represent your interests at the negotiation table. The listing agent represents the seller.
Assemble your team early – In addition to finding a trustworthy buyer’s agent, it is equally as important to look for a real estate lawyer and mortgage broker. Both can be assets throughout the process, but having your full team in place early means you can move quickly when you want to make an offer. This can be crucial in a fast-moving market.
Understand Your Budget – Buyers need to get preapproved for financing from a bank or lending institution if they need to finance their purchase with a mortgage and are not paying all cash. Find and work with your mortgage broker to check your credit score, understand different loan types, gather tax documents and financial records from the past two years to better understand your budget. The diligence in shopping for a mortgage is just as important as the home search.
Tailor your search – Make a checklist of what you are looking for in a home, it can be anything from location or square footage, to proximity to a workplace. Understand what your must-haves are vs. your wish list – and ensure you’re on the same page if you’re shopping with a partner, spouse or roommate – in case you need to make some decisions along the way.
Get an Inspection– Now that you’ve found your ideal property, cross off any worries you may have with an inspection. An inspection can uncover problems inside the walls and under the floors, whether the plumbing and electrical systems are up to code, whether the appliance has been properly installed and much more, which ultimately saves you money in the long run.
Use tech to stay on top – Stay on top of your real estate search even on-the-go with mobile apps that will save search criteria, favorite listings, and send you instant notifications when new listings with your criteria hit the market.
Kyle Hiscock – RochesterRealEstateBlog.com
Buying a home for the first time can be very stressful and there are often many unknowns. There are hundreds of articles and tips for first time home buyers that can be read but what really is the best advice?
The most important tip I give to all of the first time buyers I work with is to not over extend when purchasing a home. This means if you’re able to technically qualify to purchase a home for $200,000, that doesn’t mean you should necessarily purchase a $200,000 home. It’s recommended you purchase a home for less than the maximum amount you’re pre-approved for so you have some wiggle room on your expenses in the event something needs to be repaired or you’d like to go out for a nice steak dinner!
Another very helpful tip that I provide for first time home buyers is to make sure they take into account all of the expenses of owning a home. Owning a home is not as simple as paying the mortgage. There are other expenses that comes with owning a home such as utilities and potential repairs. Not taking other expenses into account can put a ton of financial stress on a first time home buyer!
About The Author:
Kyle Hiscock is aRochester NY Realtor with RE/MAX Realty Group. He has been helping buyers and sellers in the Greater Rochester area for over 6 years with their real estate needs.
Kylie Travers – TheThriftyIssues.com.au
1.) Plan properly
Sort out your budget, work out how much you will need to buy the home including a deposit, insurance, fees, settlement and have a budget for any repairs once you have bought the home. The chances of your home not having something go wrong after you’ve bought it are slim, so be prepared.
Also, if you’re newly weds buying your first home, take into consideration the repayments should one of you not be working. Only borrow what you can afford to repay on one wage.
2.) Make more money
Base your budget and savings on the income you have now, but look for ways to make more money. You can do anything in the share economy such as Uber, Airbnb or Airtasker, try buying things to resell (I make $10,000 a month doing this and have a guide here http://thethriftyissue.
3.) Be smart with your purchase
Why are you buying the home? Is it to live in for a long time or invest? Is it sturdy, in a good area, is it likely to increase in value, what can you do for little cost to increase the value? Ask yourself these questions and more. Know what you want in a property and don’t settle for something that doesn’t fit your needs. Also, be aware of how much houses are selling for and common issues in the area.
4.) Check insurance
This has 2 parts, firstly, check if there is anything insurance companies will not cover in the area you are looking to buy in such as flooding, fire or cyclones. If it can’t be insured, you need to personally be able to afford to rebuild.
Secondly, insure correctly. Many home buyers insure their home for the price they paid for it. What you need to insure it for is the cost of rebuilding plus removing the home if needed. You will need to make sure insurance covers rent for you somewhere else and your belongings are insured too. This is less than the purchase price in most circumstances. Know what you need to insure and what you are covered for.
Linda Craft – LindaCraft.com
First time home buyers:
Create a budget. If you are married, create a budget that you and your spouse both agree upon. In that budget, include comfortable monthly housing expense. Remember ownership means you will have future repairs and maintenance. Plan to set aside $200 a month in a savings account for future repairs for a detached single family home and $100 a month for a townhome or condo.
Get pre-qualified by a lender before looking at any homes. Regardless of what a lender may say you can borrow you need to stay at a price that is comfortable for your budget. Lenders will normally allow you to borrow higher amounts. Stay in your budget. A home should be a happy place not a monthly burden.
Hire an experienced real estate broker to educate and guide you away from problems and towards good investments. Look for real estate brokers that recommend and provide formal home buying consultations like Linda Craft & Team, Realtors. First time buyers have a lot to learn. When you find a broker who has experience and the heart of a teacher, you will find a home you love and it will be a good investment too with these 3 critical steps in place.
Decide what is most important. Appreciation or cash flow? You rarely get both.
Higher appreciating areas you will need more upfront money because prices are higher and the turnover is faster which attacks your CAP rate and cash flow. In the high demand areas you will attract relocation buyers who want to rent before they buy, young professionals saving money for a down payment. Rarely do you get a tenant for more than 2 years in prime locations where appreciation is high. These areas are transient.
Areas where appreciation is lower, usually have lower house values making entry easier on your cash flow. They also tend to attract longer term tenants of 2 years or more which provides the best stability for an investor. However, when you sell you may see very little appreciation.
Buy low maintenance brick or vinyl homes with 3 or more bedrooms. A garage is a plus at keeping a tenant longer. Townhomes rent as well as single family detached homes so do not shy away from multi-family. Maintenance expenses are generally lower on townhomes than single family detached home.
Before buying any property, check the covenants and with the Home Owners Association (HOA) to make sure they allow rentals. Many neighborhoods like Brier Creek have caps on the number of leases allowed at one time and some, like Bedford do not allow rentals at all.
Always check credit and references from previous landlords.
Maria Killam – MariaKillam.com
Go for Timeless and Classic
My area of expertise is color, and my aesthetic point of view is timeless and classic. If you’re buying a home, and you have some input into the finishes and colours that will be installed, get educated on which choices will be the most timeless so that in five or ten years, you’re not facing the expense of renovating your new house because the trendy finishes you installed are now unbearably dated. This means choosing the simplest, solid finishes in fresh white or cream as much as possible to maximize your ability to change up your colour palette and style in time.
Avoid Layouts that Aren’t Time Tested
If you’re not buying new, look for a classic layout, in other words “good bones” which will be easy to transform into a timeless home for years to come. House plans like colonials, ranchers and bungalows that offer symmetry and nice layouts are much nicer to decorate than crazy layouts with echo chamber double story spaces, too many oddly placed windows and archways and a crazy roof line. Again, learn to see through the lens of timeless and classic.
How Deep into Your Pockets Will You Need to Dig for Pretty?
Obviously, you want to make sure the location is good and the structure and technical aspects are sound, but from the aesthetic perspective of a colour expert, look carefully at the kitchen and bathrooms and assess how much it will take to create a fresh and classic look. No one ever loves the trendy tile combinations they inherit when they buy a house. Cabinets can be painted, backsplashes are inexpensive to replace, but wild granite and botchy floor tiles can get much pricier to deal with. You probably won’t find the Holy Grail of houses with a classic white kitchen and bathrooms, but you can look for something that can be greatly improved with some minor cosmetic tweaks
·New Paint Only Goes So Far
Paint can have a huge impact on the look of a house, but be aware that you can’t ignore a bunch of bossy, earthy hard finishes like tile and stone which will dictate your colour palette until they are changed out. Look for neutral wood or laminate flooring and white or off-white kitchen and bathroom finishes wherever possible.
Mark Ferguson – InvestFourMore.com
1.) Get pre qualified with a lender as soon as you possibly can. If there are any credit problems a lender will help you figure out the best path to take to repair those problems. A lender can also give you a realistic idea of how much house you can qualify for.
2.) Just because you can qualify for a $200,000 house, does not mean you need to buy a $200,000 house. When you max out how much house you can buy, it makes it really hard to save any money. I would try to spend less than what the lenders say you can spend.
3.) Take your time learning the market. One of the biggest advantages in real estate is being able to buy houses for less than what they are worth. Some houses need work, or the seller needs to sell quick. Learn your market, and be ready to jump on a deal when it comes up.
4.) Be willing to buy a house that is not perfect to get a better deal. A house can be a huge financial boost, but it can also be a drag on your finances. When you sell a house it can cost up to 10 percent of the selling price to pay agents, closing costs, and title fees. If you pay full retail value for a home, you may not be able to sell it for a few years. But if you buy a home that needs a little work or isn’t quite perfect, but is a great deal, you will be in a much better financial position.
5.) Find a great team to help you. Real estate agents and lenders can make a huge difference in the deal you get, and the loan you get. They are not all the same and you need to take your time finding the right people to work with. A bad lender can cost you thousands and kill a deal. I suggest finding a great agent, and using one of the lenders they recommend.
Mike Mcneil – TheDividendGuyBlog.com
1.) Don’t borrow the maximum allowed by your banker, you will end-up eating peanut butter for the rest of your life.
2.) Have your house inspected before closing the deal. It’s a few extra bucks that could save you tons of hassles down the road.
3.) If you ever fall in love with a house, take 24 hours before making an offer.
Mike Murphy – ACHRnews.com
A most common mistake is to take for granted those items that are out of sight, out of mind. The heating and cooling system and the hot water heating should be not only inspected (which they will be by most home inspectors) but should also be evaluated more closely.
How old is it, how efficient is it compared to what is new on the market?
First time home buyers, though tempted to think only of the mortgage payment, should not ignore operating costs of the home
MR CBB – CanadianBudgetBinder.com
Pay off debt
Before we even considered purchasing our first home we paid off our consumer debt and my wife’s vehicle loan. The last thing we wanted to do was get in over our heads with a mortgage and home maintenance if something were to happen to one of us.
Budgeting is a great way to pay off debt, control spending and save for future purchases. Once debt is paid and you start saving for your down-payment save enough to get you out of the CMHC fees and then some if you can.
Create a game plan
This is critical. If you don’t have a plan in place anything could happen. We bought a house on one income thankfully as my wife lost her job 3 months later. We also saved more than 25% down and created a mock homeowners budget. It was more about finding out whether we could afford the house or not given certain scenarios. Had we of not done the above we wouldn’t have been able to pay our mortgage off in full in 5 years time before the age of 40. We are now parents to an almost 3 year old and life is better than ever. Now we’re ramping up our retirement savings, education savings and not worrying as much.
Nathan M. – RentecDirect.com
Don’t forget about maintenance and repairs.
Maintenance and repairs cost more than you think up-front. Consider painting every 10 years which will cost $2-5k depending on the house and area. A new roof can be up to $15,000 every 20-30 years. Figure these larger expenses into a monthly savings budget and remember to factor in these large expenses, along with the regular monthly expenses, when figuring your actual ROI.
You need a minimum 8% ROI. S
peaking of ROI, make sure after all anticipated expenses (including property management) that you are earning 8% on your investment. If you are not earning 8%, find a better deal. To calculate this, take your down payment and any other up-front costs and figure out what 8% of that is. Eight percent of a $25,000 down payment equals $2000 per year of profit. Take anticipated rent, minus vacancy rates (10%), minus taxes and insurance, minus regular recurring maintenance, minus property management fees, minus a budget for larger items (see #1 above), equals your actual profit margin.
Invest in software designed for landlords.
Using a software package designed for your business can not only save you hours of time every month, but save you thousands of dollars in taxes. Most landlords do not keep accurate records and even make-up information (by means of estimates) when it comes time for taxes. This can be costly and on average it costs landlords hundreds to thousands of dollars in tax savings they should be getting.
I founded Rentec Direct in 2009 which is a cloud based software company that services the landlord and property management industry. Today we work with over 13,000 landlords and property managers in the US by providing them automation software, tenant screening and education to effectively and efficiently manage their rentals.
Peter Anderson – BibleMoneyMatters.com
Be aware of home buying scams
It’s sad that you have to mention it in this day and age, but unfortunately when you’re dealing with large amounts of money like a home purchase, you need to be careful about fraud. One of the big scams that I’ve seen lately is the closing costs scam where a hacker will hack into the email or computer systems of realtor or someone else involved in the transaction, and at the last minute ask the buyer to send the closing costs and other fees to a new bank account that is controlled by the scammer. By the time it is figured out often the hackers have made off with the people’s life savings. I have a friend who almost just lost her life savings to this scam. Don’t be in a hurry and always confirm accounts over the phone or in person.
Be ready for the added costs when owning a home:
When buying a first home it can be easy to forget all of the miscellaneous costs associated with purchasing and owning a home. Things like taxes, homeowner’s insurance, mortgage insurance, escrow fees, legal fees, property taxes and more. Be aware of what all of the home buying costs are, and save up for them!
Richard Metz – SimpleLivingAustralia.com.au
1.) Don’t expect to be able to afford the best street in your suburb, the first home is a stepping stone into the market.
2.) Make sure you account for all the supplementary costs of your purchase; inspections, legal, closing, etc.
3.) Don’t fear having a mortgage, its good debt so to speak.
4.) When buying an investment property, don’t think about if you’d live in it…think about the yield.
Ryan Fitzgerald – RaleighRealtyHomes.com
In a market like the one we have here in Durham these prices won’t be able to last long. The economy here is growing so fast that buying anything will be a much better decision than buying nothing. Too often I see buyers become intimidated or overwhelmed by the large numbers and continue to rent. Remember, in most cases the bank is paying for the home and you are paying the bank back over time. A lot of people buy vehicles the same way. You use the bank’s money to buy the car and pay the bank back over time. This is a GREAT ROI that you can’t get with stocks. In some cases first time homebuyers will invest $0 in their home purchase. Homeownership is the safest investment you can make.
Don’t forget closing costs
A lot of first time buyers won’t realize that they still owe the lender, the attorney, the inspectors, and other parties funds for helping them close on their house. With many first time homebuyers we leverage either the bank’s money or ask the sellers to pay closing costs in the offer. This is a great way to buy a home if your cash is limited.
Location is #1
Location is far more important than condition. You can change the condition of a home at any point – one thing you can’t change is the location. Buying in a great location means you will likely see greater appreciation because the desirability of the house is strong. This also means that should you need to sell you will have a much easier time.
Sal Briggman – CrowdCrux.com
Location, location, location.
Your profit is made when you buy the property. Pick a location that’s growing. Good schools should be going up. There should be rising wages and a diversified workforce. This will help your asset appreciate over time.
Create a safety net.
Being a first-time home buyer is scary. A lot of things could go wrong. Invest in insurance and any measures that you can take to mitigate those potential risks. Ask for referrals to reputable contractors for future reference.
Contribute to a positive local community.
A good community pays dividends for all involved. Not only will it make selling your home easier when the time comes, but it will also fetch a better price.
Sal is also a contributor @ RealEstateCrowdfundingExplained.com.
Seth Williams – ReTipster.com
1.) If you’re buying a property for investment purposes – make sure you do a thorough analysis of the property and be intimately familiar with the numbers you’re using to calculate the property’s projected ROI. Challenge your assumptions and ask important questions – like:
- Where did you get these numbers and assumptions?
- What makes you think this information is reliable?
- How likely are these numbers to change in the future?
- Will this investment still make sense if your numbers are wrong?
2.) Make an extensive list of your needs and don’t compromise. Make sure the property offers the functionality you need, because as time goes on, your needs and wants will most likely increase, not decrease.
3.) Don’t bet the farm on your first property. Only invest an amount you’d be able to survive without if the worst case scenario occurs. However unlikely the worst case scenario may be, remember that your first property will be a MAJOR learning experience (one way or another). If there’s ever a time to play it safe and NOT overextend yourself, it’s when you’re just getting started. Learn your biggest lessons on a small scale and go after the bigger fish when you’re armed with the knowledge and experience to take those next steps.
Sharon Vornholt – LouisvilleGalsRealEstateBlog.com
Buying your first property as a new investor can be stressful, but the more prepared you are the easier it will be. Here are a few tips for you.
- You need to educate yourself before you sign on the dotted line. There is a ton of free and low cost education available to everyone. Rather than watching TV every evening, spend some time on blogs, listen to podcasts or watch videos on YouTube. You can do that without spending any money at all. Be sure to join your local REIA (real estate investor’s association). This is where you will find both seasoned investors and others just getting started just like you to network with. You will also find private lenders for your deals in this group.
- Decide on an investing strategy. Whether you start out with wholesaling, fix and flip, or a buy and hold strategy will depend largely on several things. Those will include your interests, your talents and skills as well as your access to cash. Know that you will likely try a couple of different strategies before you find the one that is right for you.
- Find a mentor. This is another reason to join your local REIA. You will find your first mentors in your REIA. My group has an educational program every month. Not only will you find that this one of the best places to learn about real estate investing, you will also figure out who the real “players” are. This information will be invaluable when you want to buy or sell a property.
- Commit to being a lifelong learner. This business and the market changes all the time, so you’re never done learning. People that attend seminars and events make more money than those that don’t.
- Once you’re a seasoned investor, give back. Mentor someone else!
Sharon Vornholt is the owner of Innovative Property Solutions in Louisville, KY. She has been investing in real estate since 1998 and has been a full time wholesaler since 2008.
**Make sure to checkout Sharon’s upcoming REI Marketing mastery class!
Steven Harrell – TinyHouseListings.com
How many homes in the resume?
How many homes has the builder built in the past? Does the builder have examples of their work and even better, referrals they can give you for testimonials? If its their first build, that’s not a deal breaker. Have a friend that knows about construction take a look at with you, much like you’d have a mechanic friend look at a used car. If the builder has a construction background, all the better. If the tiny house was a DIY project and you see issues but are still interested, be sure the price reflects it.
It all starts with a good foundation
If you’re purchasing a tiny house that’s mounted to a trailer, have a good look at it to make sure it’s actually qualified to hold the home sitting on top of it. How many pounds it the trailer rated for? If you’re suspicious, weigh the whole setup to ensure the home’s weight is well below the trailers capabilities. Surface rust is fine, just make sure the rust situation doesn’t go beyond that. Chances are, you’re planning to own the tiny house for a good while, so make sure the trailer is built and ready for the long haul.
New or used makes a big difference
If you’re hiring someone to build a tiny house for you, this is a huge difference than if the tiny house is used. If you’re hiring a builder, chances are they will have other tiny house under construction. If so, inspect those tiny houses and again, have a construction friend that knows best practices to join you. If the tiny houses is used, be sure to ask the ol’ tried and true questions. Why are you selling it? What issues have you had with it? Was the trailer new when you built it?
Your first tiny house is a big purchase, so be sure to give the transaction the due diligence it deserves.
Tim Manni – NerdWallet.com
1.) The number one piece of advice I would give to first-time home buyers is “improve your financial self.” Before you look at properties, before you make an offer, be sure your credit score is as high as it can be and your debts are as low as they can be. When you prioritize these two things, you can qualify for the lowest rates, qualify for the highest loan amount and will have the most financing options available to you.
2.) The second piece of advice is “save, save, save.” Saving as much as you can before you buy gives you many financing options and prevents any unwanted surprises. When you’re saving for a home, you’re not just putting money away for a down payment, you’re also saving for closing costs, furnishings for after you move in, and any repairs and upgrades you want or need to make. Last but not least, you also need to save for an emergency fund. No matter if you’re a renter or a homeowner, every personal finance expert recommends you have an emergency fund. But having a well-stocked emergency fund is especially important for homeowners, where surprises, like a broken fridge or busted water heater, are always lurking just around the corner.
3.) My final piece of advice is “never rush your decision.” There’s nothing more exciting than buying your first home. Likewise, there’s nothing more regrettable than being stuck with a home that’s too expensive, that requires too much work, or simply just isn’t what you really hoped for. In fact, roughly 3 in 5 millennials (57%) and Gen X (61%) homeowners indicated they had regrets, saying they would do things differently the next time around in the home-buying process, in comparison to only 38% of baby boomers. Without a doubt, there are certain compromises you’ll have to make when buying your first home, but an ugly bathroom or a dingy basement can be made new again, but an expensive mortgage or a home’s location are really hard to change.
Todd Tresidder – FinancialMentor.com
Get more house than you think you need. Don’t overbuy, but do plan on future needs (like a growing family) when you make your decision. The reason this is important is because it’s expensive to buy and sell homes and move later when your needs change. Plus, every time you refinance or make a new purchase you start a new amortization equation on your loan which further lengthens the time until you’re debt free. That’s why one of the not-so-surprising characteristics of financially successful people is they tend to stay in their homes much longer than average. By planning your future needs into your current purchase you’ll reduce total costs and get out of debt that much sooner.
Get Todd’s course teaching you how to retire earlier than old here…
Tracie Fobes – PennyPinchinMom.com
1.) Know your budget. Not what the bank says you can afford, but what YOU can comfortably afford. You never want to be house poor.
2.) Go into properties with an open mind. Walls can be painted, carpet can be cleaned. Don’t turn down a property because you don’t like the red wall in the kitchen.
3.) Don’t rush to buy. You don’t want to end up regretting it later and not being happy with your home purchase.
Usiere Uko – FinancialFreedomInspiration.com
How much mortgage do you qualify for?
Before you start shopping, find out how much you qualify for. This will give you an idea of your budget. You may want to talk to a couple of lenders
How much can you actually afford?
Sometimes a bank will offer more than you can actually afford. Take an inventory of your income and expenditure to figure out how much monthly mortgage payment you can afford. Work with that figure rather than what lenders are offering you. You don’t want to go in above your head.
Hire your own independent home inspector
Make sure the offer is contingent on an independent inspection by you. Hire a home inspector who will give you an unbiased assessment. You can either negotiate the price down further to offset the cost of repairs or request the seller fixes the issues before the sale.
Get multiple quotes for estimates
If you are carrying out repairs/renovations, get at least 3 estimates. The lowest bid is not always the most cost effective option. Make sure the contractor is experienced, and will not pad costs along the way through scope changes.
Vipul – TheFinanceGenie.com
Be mindful of all the costs.
- There are many big and small costs associated with buying your first home. Understand them all and how they impact the bottom line. These fees start to add and can be more than a few percentage points of costs beyond the cost of the mortgage.
- Also make sure that you budget for all the purchases that you need to make once you move into your home. Things like movers, furniture, lawn mowers, paint, tools, decorations, etc.
Pay to get your home inspected
Home inspections can immediately pay dividends. They’re the expert of finding issues or potential future issues with your home. As part of the negotiation with the seller, make sure you note any potential issues and if possible reduce the purchase price or get those items fixed. Once you move in, you won’t have as much time, energy or funds to deal with potential problems.
Survey The Neighborhood
If you’re planning on moving, it’s best to check out the neighborhood. Who are your neighbors, how good are the schools, what amenities are nearby, how far will your commute be to work. The last one is tricky and it might be wise to test out your commute during the hours you would normally go. Keep in mind, if you purchase a home in the summer, traffic might be lighter because kids are not going to school.
I can’t thank everyone who contributed to creating this article enough for taking time out of your busy schedule to make this awesome resource for first time home buyers. My apologies to everyone who contributed for not framing the question in a more concise way. I take full blame for the split in investor VS first time home buyer responses. That said, It’s all fantastic information. Both sides can learn a great deal from reading through the experts answers!
Just to recap quickly, here were the results.
Top Tips For First Time Home Buyers
#1 Plan & Budget For The Future – 15 votes
#2 Don’t Borrow The Maximum – 10 votes
#3 Educate Yourself – 9 votes
#4 Budget For Extra Costs @ Closing -7 votes
#5 Location. Location. Location. – 6 votes
#6 Put Together A Great Team – 6 votes
#7 Get Pre-Approved – 6 votes
#8 Pay For A Home Inspection – 6 votes
#9 Embrace The Ugly – 4 votes
#10 20% Down Is Huge – 3 votes
Glad to be part of your article John. I like what Brandon says about “Nasty locations breed nasty tenants!”. I couldn’t agree more and if I could add one thing to my reply, that’s what I would have said too. 🙂
John Connor says
Hey Nathan! Totally agreed, I should seriously think about adding a section for the responses based on investment properties. There is some good stuff there that didn’t necessarily get highlighted in the infographic.
Thanks again for being a part of this Nathan.
Ayoob Kadir says
A very informative article, It is important for a home buyer to first of all set a budget and check their affordability. First time home buyers often end up going into financial crisis because they end up buying a home that is too expensive.
Tammy Houston says
It was great that I came across this article because I learned that one of the best ways to ensure that the home I am interested in will not cause troubles for me and save me money, in the long run, is to have it inspected. I actually have a home that I have in mind already, but I am not sure whether it is the right one for me as I am concerned with the functionalities and such. Seeing this article gave me an idea how I will be able to determine if the property that I am interested in really is worth buying. Thank you!