Thinking of buying your first home in Des Moines, Iowa? Smart move! According to Bloomberg, Des Moines is one of the best places for first-time home buyers. And Bank Rate lists Iowa as the #1 best state to buy your first home, based on affordability, job availability, and the housing market.
But before you make that move, plan ahead. Buying a home is one of the largest financial decisions you will ever make. You want to get it right – the first time! If you do your homework, prepare, and get the right people on your team, the process can be smooth and uncomplicated.
5 tips for buying your first home
1. Get your finances in order
Since you’re embarking on the biggest financial commitment you’ve ever made, your finances need to take top priority. Houses have a hefty price tag, so you’ll probably need to get a home loan and save for a down payment. But before you talk to the bank, you should determine how much you can afford. No one cares about your money more than you do.
Know your current income and expenses. You need to know exactly where you stand right now before you can move forward. Try tracking your expenses for at least a month. Don’t just include your income and debt, but all of your living expenses, such as food, gas, and insurance.
Check your credit (and don’t sign up for any new credit cards/loans). Your credit score and history will determine if you qualify for a loan and can affect the terms of the loan.
Save for down payment (and closing and moving costs too). The more you have for a down payment, the better your loan terms will be (and you’ll have a lower payment). You need at least 3% of the cost of the home for a down payment. The down payment needs to be in a savings or checking account for at least 2 months prior to getting loan pre-approval. (Therefore relying on the returned deposit on your rental unit isn’t ideal.)
Also, be prepared to write a check for earnest money when you make an offer on a home (about 1% of the purchase price). Your earnest money will be credited to you when you sign the final paperwork, but needs to be available when you make an offer.
Don’t forget to save enough for moving and closing costs (the fees associated with the transfer and purchase of the home).
Qualify yourself first. After you track your expenses and know where you currently stand, decide how much you can afford to pay for a house. Don’t forget about additional expenses that go along with owning a home, such as homeowners insurance, repairs, property taxes, and maintenance.
To help you determine your budget, use a mortgage calculator for an idea of what your payment and expenses would be at different prices.
2. Find a real estate agent
I bet you’ve already looked at houses for sale online. It’s a fun way to research and explore your local real estate market, as well as find neighborhoods you like (and can afford).
Doing research on your own is a good first step, but when it comes to finding and buying your home, seek out the expertise of a great real estate agent.
“Driving around neighborhoods with an agent highlights the subtleties of a given market, things not easily represented online—like how one side of a canyon gets darker earlier, making it less valuable than the other side.” – CNBC2
An experienced real estate agent knows your neighborhood and market.
A buyer’s agent represents you, the buyer (not the seller). They keep your interests as their top priority and help you navigate the real estate market. Your agent will help you make offers and negotiate on your behalf. Plus, the seller almost always pays the real estate agent fees so it won’t cost you a thing.
To find a great agent, ask for referrals from family and friends, but also make sure you “interview” agents before you work with them. They should:
- Have experience
- Communicate well
- Be available
- Know your local market
- Be interested in what you want
- Readily answer any and all questions you have
3. Find a mortgage lender and get pre-approved
Talk to mortgage lenders to compare rates and terms of loans (ask your real estate agent for referrals). Learn about different loan programs you could qualify for (FHA, VA, and more). Compare rates, terms and down payment requirements for each program.
When you find a lender and loan program that fits your needs, seek prequalification. Prequalification is an estimate of how much the bank might lend you. The lender will ask questions about your finances, such as income, debt, and savings. See if what you think you can afford and what the bank says match up. (If the bank qualifies you for more than you had figured you should spend, stick with your numbers! You know more about your financial situation.)
61% of misunderstandings between lenders and customers are related to fees, terms, and costs.1 Always get clarification on any part of the loan you don’t understand and don’t be afraid to ask questions.
Get pre-approval from your lender when you’re ready to start shopping for a home. Pre-approval is different than prequalification. Pre-approval requires that you provide specific, detailed financial information to the lender, such as pay stubs, bank statements, loan balances, etc.
The preapproval letter from your lender gives you the advantage over buyers without pre-approval. When making an offer on a house, it shows sellers you will be able to secure a loan to pay for the home.
If you’re buying your first home in Des Moines, Iowa, check out a few of the programs available that could provide additional financial incentives and assistance when buying your home. The Iowa Finance Authority provides affordable loan programs, down payment assistance and more. The Neighborhood Finance Corporation provides loan assistance for fixer-uppers in specific areas.
4. Take your time finding a home
Don’t rush into home ownership and buy the first house you see. Take your time and think about what you want and need.
Make a list of your wants and needs.
- How long of a commute do you want?
- Do you want a large lot or would you rather have it mowed in 15 minutes? Would a condo be a good fit?
- How close do you want to be to public transportation? Are bike trails and parks important to you? What about shopping?
- Look to the future. Maybe a 2 bedroom will work for you now but, if you plan to have children, you might need a 3 bedroom later.
- Do you want to be in a particular school district?
- What do you want to have (non-negotiables)? What would you like to have (but don’t have to)?
You probably can’t have everything you want and stick to your budget. Don’t let little things stop you from considering a home – no home is perfect. You may have to compromise on some things. A pink bathroom is easy to remedy, but location and size are not.
5. Get a home inspection
Once you’ve had an offer accepted on a home, emotions run high with excitement and anticipation. But don’t let those feelings prevent you from doing your due diligence. Looks can be deceiving. Even if the home seems flawless, there could be hidden problems you don’t see. And sometimes hidden issues become expensive repairs.
Get an inspection through a reputable business (ask your agent for recommendations). The cost is well worth it. A few hundred dollars spent now could save you thousands in repair costs later. Though no inspection is an absolute guarantee, you will be more informed of potential problems than if you hadn’t done it.
Tag along with the inspector as they go through the home and check out all areas, including the attic, basement, crawl space and garage. Ask questions and learn as you go.
An inspection is a contingency within the offer. Which means if the inspector finds issues, you can negotiate with the seller for repairs, a price reduction, or you can walk away if it’s not to your satisfaction. Your real estate agent will help you with any negotiations and decisions related to the inspection.
Buying a home can, at times, feel intimidating and overwhelming. But it doesn’t have to be. At Coluzzi Real Estate, we answer all your questions and simplify the process every step of the way. Please don’t hesitate to contact us at any time!
1. Lock in Loyalty: Coming to terms with the new borrower’s needs, PricewaterhouseCoopers.
2. 8 biggest mistakes first-time homebuyers make, CNBC.com
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