7 Investment Tips For First Time Home Owners

Learn some essential tips you should consider before buying your first home. From recognizing a good deal to finding a lender, these 7 investment tips will help you buy your first home.
Infographic of home buyers talking about a home purchase

Purchasing a house is a considerable investment that shouldn’t be taken lightly. It’s an intense process for first-time homeowners, filled with uncertainty and excitement. So here are seven investment tips for first time home owners to consider to ensure you get the best value for your money:

1. Get Pre-Approved for a Mortgage

Given the colossal costs associated with property purchases, financing options are a significant concern for first-time homeowners.

Pre-approval on a mortgage is an option you may want to consider when purchasing a new home. It gives you a clear idea of how much you can spend on your new home. However, you need to provide a few things when applying for a pre-approval mortgage, including:

  • Financial information: your income, credit rating, debts, and assets.
  • Type of loan: There are many different types of loans available. It’s best to choose a loan sufficient to cover the purchase and related costs with the most favorable repayment terms.
  • Down payment: The down payment is the sum of money you need to contribute up-front towards the property purchase. Of course, the more money put down, the lower the monthly payments. Typically, most financial institutions cap the down payment amount at a minimum of 20 percent.

Once you’re pre-approved for a mortgage, start shopping for a new home!

2. Save For a Down Payment

Depending on your mortgage choice, you need to come up with as much as 20% of the home’s purchase price in cash. This can be a tall order, especially for individuals already stretched thin by other expenses.

Here are a few tips first-time homeowners should use to save for the down payment:

  • Make a budget and stick to it. Then, determine how much money you need to save and make the necessary adjustments.
  • Open a dedicated savings account. This helps you stay focused on the goal and avoid using the money for other purposes.
  • Set up automatic transfers. Automating savings deposits help make headway on the savings goal without having to think about it too much.
  • Get creative with income. If possible, create additional money sources via side hustles or extra work hours. Then commit the extra income to the down payment savings.
  • Cut back on unnecessary expenses. Take a close look at spending and see where you can cut back to free up more cash.

3. Know The Financial Nitty Gritties

Infographic of couple learning about investment tips for first time home owners

Having all the relevant financial information is vital when buying a home. Here are a few things you need to know:

  • Credit score: A credit score is a number that reflects how good—or bad—your finances are. The higher the credit score, the better it looks to lenders who use it to indicate whether they can lend you money.
  • Debt-to-income ratio (DTI): The percentage of your income that goes toward paying monthly debt, such as student loans or car payments. A lower DTI is better than a higher one as it means more money is available for closing costs and down payment. In addition, having less debt on average means less risk for banks if something goes wrong with your investment as an owner-occupant.
  • Monthly debt obligations. Before buying a home, know the monthly debt obligations so that any other potential costs don’t blindside you later when you come up during escrow (the period between signing off on loan documents and taking possession). For example: Do I already have enough saved up for my down payment? How did those numbers compare to my estimated monthly housing expenses? Did I forget any hidden homeownership fees like HOA dues or association fees?
  • Don’t underestimate what kind of rental property taxes cost each year; these vary widely by area, so ensure enough room in both cash flow projections AND savings accounts before renovating!

4. Stay Within Budget

If you create a budget and stick to it, this can help you stay on track financially. A good financial plan before purchasing a home for the first time will help you stay within the budget. However, you should remember that a mortgage is not the only expense of owning a home; homeowners must pay for property taxes, insurance, maintenance, and repairs. Therefore, you should also factor these costs into the budget and adjust your options as necessary. If you need a bit of help, online tools and apps can help you stay organized and on budget.

5. Inspect The Property

A thorough inspection of the property helps determine the actual state and possible repair costs if necessary. While most property sellers are genuine, there’s the possibility of being shortchanged in a property transaction.

Parts to pay special attention to include:

  • Paintwork. Peeling paint or mold may indicate underlying issues.
  • Roof and Ceiling. Look for stain patches on the ceiling that a leaky roof causes. A recently painted ceiling could also show attempts to cover leaks.
  • Floor. A misaligned floor or cracks is a sign of settling and a clear indication of a faulty foundation.

After your own visual inspection, it’s best to get a professional home inspector in. After an inspection, the appraiser comes up with the most realistic value of the property, which is a critical factor in making an informed decision on whether or not the property is worth buying.

6. Look for a Home with Potential

When looking for a first home, keeping an eye out for properties with investment growth potential is essential. As a first-time homeowner, find a home you can add value to, which will pay off in the future. Here’s how to maximize your first home purchase:

  • Look for fixer-uppers: A fixer-upper is an excellent opportunity to add value to a property. Making some simple cosmetic changes increase the value of your home significantly.
  • Look for homes in up-and-coming neighborhoods: Another great way homeowners add value to your homes is to buy in an up-and-coming neighborhood. As the area becomes more popular, the value of the houses increases. Ensure proper infrastructure in the community, sufficient security, and easy access to social amenities.

7. Settle On Property and Make It a Home

When buying a home, there are more things to consider than the price tag. First, remember that you’re buying a property that will become a home you love. As a first-time homeowner, you should buy a home that fits your family’s lifestyle and needs. It may be tempting to buy the cheapest house on the block because it meets all of your basic requirements, but you may end up hating living there. If there are some minor issues with a particular house, but overall, it has everything else going for it (location, size), those flaws may be addressed later down the road when finances improve. But don’t rush into anything unless there truly is no other option available!

First-time home ownership is an exhilarating yet complex affair that frustrates most people. Proper research and understanding of your priorities and budget go a long way to ease this process. However, once you’ve been through the process and found a home you love, the joy of being a homeowner is unmatched.

Related: How Many Times Can You Actually Refinance A Mortgage?

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