How to Buy Property for the First Time | Out of all property buyers last year, 31% were first-time property buyers. That’s pretty remarkable when you consider that most first-time homebuyers are in a highly competitive real estate market.
It’s flooded with cash buyers who are buying rental property. They’re mostly investors looking to cash in on the hot real estate market.
It makes it very hard for first-time property buyers to have a competitive offer. Many find it intimidating and choose to wait out the market.
You don’t need to be intimidated, you need to learn how to buy property. That puts you in a position to submit the best offer and get the property of your dreams.
Keep reading to learn all about buying property to make your first time a breeze.
- Know What Kind of Property You Want
There are so many different types of properties, it’s hard to figure out what you want. Start with a list of everything you want in a property.
For example, if you plan to buy a rental property, you might want to have a multifamily home that you live in as well.
Looking for a timeshare? Then you’d want to know if you can use Hilton points at the property or not.
If it’s your first residential property, you’ll want things like a big backyard, open kitchen, fireplace, and a quiet neighborhood.
Make a list of every little thing you’d like to have in a property. Look at sites like Pinterest and home magazines for inspiration.
- Determine How Much You Can Afford
People who buy property for the first time aren’t sure of the financial piece of the property puzzle. They think about monthly mortgage payments, but little else.
You have to consider property maintenance, which should be 1% of the property’s value each year. Then there are property taxes. Add those items up and that’s how much you’ll spend every month on your property.
Take a look at your budget and calculate how much you can afford for your home. This is a good time to address any issues with your credit report.
Your credit score is a big factor in determining what kind of financing you can get. A high credit score gives you a good chance for approval with a low interest rate.
Do you have a low credit score? Work to raise your score as quickly as possible. Pay down your credit cards and remove any errors from your credit report.
- Revisit Your Wants vs. Needs List
Once you go through your financials, it’s time to come down to earth a little bit. You’ll soon realize how much a property costs with all of the bells and whistles.
You’ll want to take a long look at your list of things you want in a property. Then decide which are the things that you really need to have.
Prioritize those items and make sure that you get what you need out of the home. You should know what things are dealbreakers and what you can live with.
Buying rental property or a primary residence have a similar process. If you buy commercial property, you’ll want to make sure you can fill the spaces with tenants as soon as you possibly can.
- Save For a Down Payment
How much do you need for a down payment? It depends on your situation.
You could get away with only 5% down as a first-time homebuyer. You might need as much as 20% to get the bank to approve your loan.
As a first-time homebuyer, you want to take advantage of all of the incentives and opportunities to save for a home. There are local grant programs to help people save for a down payment.
You could qualify for an FHA loan, which is a loan backed by the government. This loan program only required 5% down.
If you have a bad credit score, you’ll have a hard time getting approved for a loan with only 5% down. You’ll want to have a larger down payment. The reduces the bank’s risk and improves your chances to get approved.
Don’t forget about closing costs. These are costs that property buyers pay for at the closing of a transaction. The closing costs are usually around 3% of the home loan.
- Find a Great Real Estate Agent
First-time property buyers need to have a good real estate agent on their team. A real estate agent guides you through each step of buying property.
They’ll look at your financial picture, wants, and needs. They’ll work with you to make sure you have a property that you love.
You should get referrals from people within your network. Meet with a few agents and then decide which one will represent you.
- Find Financing
There are a few steps to get financing for buying property. The first is to find a lender. A lender is a bank that’s going to be with you for years, so you need to choose carefully.
Start off by getting prequalified for a home loan. This gives you a ballpark figure as to what you can get. You can look at different offer terms and see which one is a good fit.
You may see fixed-rate and adjustable-rate loans. The difference is that the interest rate stays as is for the duration of the loan. That’s a bargain at today’s low interest rates.
An adjustable-rate loan means that the rate will fluctuate every quarter. Your loan payments go up and down according to the interest rate.
Once you find a lender, you’ll want to get preapproved for the loan. This will enable you to compete with cash buyers.
- Buy Property Online
Can you buy property online? You could, but most property buyers prefer to research properties online, then see the best properties in person.
It makes sense to start your search online no matter what type of property you want to purchase. Take your list of property priorities and match them up against the properties online.
Your agent might have an inside track on properties that aren’t listed yet, so be sure to check with them as you’re shopping. Once you identify a property to buy, you need to work with your agent.
You and your agent will come up with an offer strategy for the home. This is necessary because you’re going to compete with other offers, including cash offers.
The agent will write up and submit an offer for buying property. The property owner will evaluate all offers and accept the best one.
- Head to Closing
In the best-case scenario, your offer is accepted. This is when the bulk of the work happens behind the scenes. You’re going to lean on the expertise of your agent.
For starters, you have to formalize your real estate loan. The bank will want an inspection and appraisal of the property. The bank wants to make sure that your loan doesn’t exceed the value of the property.
The inspection is to protect your real estate investment. You want to make sure that there isn’t anything wrong with the home. Some things are hidden and you wouldn’t know until after the sale.
Your real estate agent knows a few inspectors to work with. Know exactly what they’re looking for in the inspection. Some inspectors don’t cover things like mold and termites. Be sure you add these to the inspection.
If anything is discovered in the appraisal, you can give the buyer the opportunity to make repairs. If they choose not to, you can renegotiate the offer or decide that the property isn’t worth it.
You’re about to make a major change in your life, and you might want to change other areas of your life, too. First-time property buyers do things like change jobs or apply for new credit cards and loans to buy furniture and appliances.
Hold off on any changes until after the closing. That’s because your lender evaluates your preapproved loan based on information at that time.
New credit cards and job changes send a message to the lender that you’re a credit risk. This is often a reason why property deals fail.
How to Buy Property for the First Time
It’s a process to learn how to buy property. You don’t realize how many steps there are in the property buying process until you’re in the thick of it.
A typical real estate transaction goes through many hands, whether you want to buy commercial property or you’re buying your first home.
Hopefully, you learned enough in this article to give you a deeper understanding of real estate. If you enjoyed this article, you’ll enjoy the other financial tips on this site. Check them out today!