First-time homebuying can be both exciting and nerve-racking.
The average price of a home has increased significantly in recent years. While exact numbers vary on a state by state basis, the average cost of a home in the United States in 2023 is right around $416,100, according the Federal Reserve Bank of St. Louis. This is up from just two years ago, when the median price was around $329,000.
The cost of home buying has caused the average age of buyers to rise. Traditionally, first-time home buyers were younger many years ago and buying a home was more affordable several decades ago. In 2022, the average age to buy a first-time home was 36-years-old, according to the National Association of Realtors. This was up by three-years from the prior year.
While this is true, it doesn’t cost as much as one might think to purchase a home for the first time. Though there is much to research and consider before beginning the home buying process, don’t let the undertaking or talk of finances scare you off.
It’s never too early to start saving for the things that you want. If buying a home is a priority for you, especially a big home in a beautiful area, you’ll likely want to start saving. Saving will allow you to prepare for unexpected costs and better guarantee a purchase in a competitive market.
Though saving will be important for more than just purchasing a home, you don’t always need to stuff away an excessive amount of money to buy one.
“The minimum to put down is 3%, and we say add another 2-3% for closing costs,” Sara O’Malley, Realtor at The Balcerzak Group of AB & Co. Realtors in Maryland told Fox News Digital. O’Malley has been in real estate for six years and is exuding success in the industry. She is a recipient of the 2022 Baltimore Real Producers Rising Star Award and the 2023 Baltimore Magazine Top Agent award. “I don’t recommend more than 3%.”
There is a misconception about putting 20% down when purchasing a home, according to O’Malley.
“There’s not that much of an advantage between putting 3% or 20% down. The difference between 3%, 5% or 10% is pennies a month,” she said. “I always tell people to keep their money, buy stocks, investment properties and invest your money elsewhere.”
The amount of money you’ll need to have stored away will also depend on loans and incentives, according to O’Malley. First-time home buying incentives may not make a huge impact on the price of a home, but they are something to take advantage of. Loans like VA loans for eligible active military personnel and veterans include 0% down incentives.
Saving can be tough, especially if you don’t have enough room to do so, so don’t forget about the incentives offered to you.
While you’re likely saving for more than one thing, one easy way to save for a home is to set up an account specifically dedicated to home buying.
If you have a steady income, choose an amount to be automatically deposited into your account each time you receive a paycheck. Then, leave the account alone and let it grow. Adjust contributions after a raise or bonus to grow the account as quickly as possible. Look into high-yield savings accounts for this type of belt-tightening.
How early you should begin saving depends on when you hope to purchase, how much you already have saved, incentive programs, the size and location of the home you prefer and more. If you’ve just graduated from college, are willing and able to live with your parents, it may be worth the sacrifice to save. Set aside the money you would’ve spent on rent toward your future home. Though it may be more appealing to immediately leave on your own, it’s more economical to move in with your parents post graduation and save if you can.
If you do hope to immediately move into a place of your own, like an apartment, find roommates to decrease the cost of rent and utilities and save the difference.
You’ll likely also need to consider making daily financial sacrifices like choosing to cook at home vs going out to eat, purchasing a used car vs a brand-new model or using the great outdoors as your gym vs signing for a membership at an expensive location.
If you’ve already saved, and you’re truly ready to look into becoming a first-time home buyer, you’ll want to get preapproved for a loan before you even start looking at homes.
“Really know your monthly payment,” O’Malley said. “It doesn’t matter what your rate is, know your monthly payment and get super comfortable with that payment.”
She said that banks may preapprove you for an ungodly loan, but that doesn’t mean you can afford it so beware of overspending.
Consider exactly what you want in and outside your home. You’ll want to decide on the type of neighborhood, the size of your yard, square footage of the home, amenities like an outdoor pool and more.
Make a list of the must-have home attributes, a list of the ones you’d like to have but aren’t dealbreakers and the ones you refuse to negotiate for. For example, if you absolutely need four bathrooms, you’ll want to avoid homes with only one or two.
Check out homes online or work with an agent to attend open houses and get a true feel for what you are looking for. In researching, you may find more attributes you’d like to have or reconsider some of the must-haves you might not really need.
When it comes to buying a house, timing is important, but it’s not everything.
“There’s another misconception that spring is great for buying and winter is terrible,” said O’Malley. “The best time to buy is when you feel comfortable with your monthly payment, and you need to move or want to move.”
While you’ll want to keep track of market trends so that you’re considering opportune times to buy, there is no perfect time for loans or rates. Nevertheless, O’Malley advised her team often sees the most inventory in the spring. If you want more housing options to choose from, you may want to buy in the spring.
“But with more options comes more competition,” she said.
She also recommends that you avoid being afraid of homes that have been sitting on the market for a little while. It’s normally the home price, and you may be able to score a good deal and some paid closing costs.
You’ll also want to consider what else is going to cost you in addition to a mortgage. Are you drowning in student loan or credit card debt? Do you also have an emergency fund set-up in case your income is stripped away, or you’re met with unexpected expenses?
What is your budget for home buying only? Ignore what furniture and moving boxes or trucks will cost and simply assess how much you are comfortable spending on a mortgage, closing costs, property taxes, HOA fees and insurance. Additionally, calculate the cost of your down payment if there is to be one.
“Get a feel for what your price point is going to get you,” O’Malley said. “I don’t advise buying the first house people look at.” She recommends seeing what a price point will get you in different areas and neighborhoods as you could get a single family home with a garage in one a townhouse in another.
“Get a full view of what your money can do in the market,” she said. “I do think it’s important to look at resale value, too.”
O’Malley guided that buyers may not be thinking about selling when they’re buying, but it’s advisable to do so. She recommends understanding whether the area is forecasted to appreciate and to look somewhere you’ll be able to sell in the next few years.
Later, you’ll also want to think about new expenses like maintenance costs, any new utilities, yard work, moving, etc. and factor those into your budget.
Once you have your budget worked out, stick to it, though it may be difficult. Avoid financial troubles after purchasing a home you can’t truly afford.
When it comes time to apply for loans, you’re going to want the best possible credit score to your name to help you get approved for great rates.
“I think the minimum is 580 to buy,” said O’Malley. “It may be a little lower, but you really just need to know your credit score, check it often and talk to loan people before paying off debt because it could hurt your score.”
Establishing a good credit score can take time, so leading up to home buying, make sure you are pay off loans on time, avoid getting too close to your credit limit never miss or pay late on your credit cards. Each of these things will assist in acquiring and maintaining a good credit score. A bad score is going to make home buying a lot more difficult for you.
There are tons of different loans you can apply for as a first-time home buyer, so it’s vital that you look into all the options available and pick the best one for you. Popular loan options for first-time buyers include conventional loans, FHA loans, VA loans and USDA loans. There are also down payment assistance programs, state programs, charitable programs and educational programs.
“And you can buy ‘grandma’s house’ that may be outdated or need some work and do a renovation loan, where the costs of the renovations are built into the loan,” O’Malley said. “So you don’t need that money out of pocket.”
Home inspections are safety and quality assessments to a property and are very important. Inspections do cost money but are a step you should absolutely take during the home buying process. They’re also completely worth it.
“People are waving inspections entirely. I don’t like that. I never tell my clients to do that,” O’Malley said. “Even brand-new construction we do inspections for because every house is going to have something.”
If you avoid a home inspection because of the initial cost or the hassle of finding a reliable inspector, you may truly regret it later on. Once you purchase the home, the problems that remain are going to be passed down to you, the new homeowner.
“Not only should you do a standard home inspection but a specialty one, too,” O’Malley advised. She recommends specialty inspections for radon, the leading environmental cause of cancer, chimney, termite and pest inspections, too.
“It might be a lot of money out of pocket up front but will save you a ton of money in the future,” O’Malley added.
Realtors are experts in the home buying and selling industry. When you’re ready to start looking for homes, a real estate agent can make the process a lot smoother.
When searching for a real estate agent, look for someone who is licensed, full-time and is experienced in the neighborhoods you’re looking at buying in. You’ll also want to consider someone with a good reputation and knowledge of the industry.
“Pick an agent that has your best interest,” O’Malley guided. “Do your research, interview agents and find the person that works for you.”
But how do you know if someone has your best interest? O’Malley recommends someone with realty as their career, who is also trying to feed their family and wants you to have a great home buying experience.
“I’m licensed throughout Maryland, but I don’t sell everywhere in Maryland because I don’t know it well,” she said. “I would never take a client in an area I don’t know because that would be a disservice to them.”
To find a real estate agent, look online and be sure to read reviews, ask around among friends and family, or go to an open house and meet agents there.