First Time Home Buyers Guide: How to Get On The Property Ladder
What You Will Read In This Article
The property ladder gets its name from the series of stepping stones or stages involved that allow you to progress and “climb the ladder”. By definition, ascending stages involved in buying your first home is seen as one of the most momentous steps.
The rungs of the ladder are seen as some of the more significant stages, and the great thing about this journey is that there is no expiration date.
Older people who have a history of renting can begin their journey to owning a property whenever their situation allows in life.
While young people are more commonly seen as first-time buyers, everybody’s journey is different and there is no specific age at which you should start getting onto the property ladder.
If you have rented for most of your adult life, it might be time to enter the world of property ownership and start saving for a mortgage.
For many people, the property ladder is something that is a little intimidating.
It can often be someone’s first long-term financial venture, and that is why it can be daunting at first. This guide aims to help you construct a plan and figure out what you need to do in order to purchase your first home.
Making the first home buying steps can be the most impactful, which is why we have outlined some key points to keep in mind when doing your research. Begin your property journey on the right foot with some of these foolproof tips.
Some shady Realtors with a lower customer service rating may try to take advantage of your lack of knowledge and encourage you to make some choices that aren’t the best for you. This is why you will need to ensure that your base level of knowledge is sound and that you are aware of risks, options, and what is available to you as a first-time buyer.
For people who are looking for their first home, this is one of the ways in which you can be scammed, so doing your research will help you find a reliable real estate agent that has your needs in mind.
Credit checks are part of the preparation process, as banks and mortgage companies will use your financial information to determine what kind of mortgage to offer you.
Keep in mind, if you have consistently paid your bills on time each month, then you should have a respectable credit rating, which will allow you more flexibility with mortgage options. It is worth checking your credit rating ahead of time to see what loans are available to you and what kind of interest rates you will be offered.
Why enter the property market? There are a lot of benefits to owning your first home, from being able to make more permanent changes and painting walls without worrying about landlords complaining, to the security of knowing that you won’t have to keep moving to different apartments all while building equity and increasing your net worth.
The First Time Homeowner Advantage
One of the ways that the modern world has proven beneficial to first-time buyers is the addition of technology and the volume of information that is available at the click of a button. Mortgage lenders and banks are keen to help you make the first big step, which is why there are so many programs, loans, and tax breaks that aim at making the process easier.
In spite of the modern world causing changes in attitudes, perspectives, goals, and even division, buying a home and becoming a homeowner is still widely considered a part of the American dream by a lot of people.
Making steps to become a homeowner is readily encouraged because of the many benefits that government and banks experience as a result of an increase in homeownership rates. Rent is considered “dead money” by the masses, which is why many try to prevent spending long periods of time renting.
You will be able to work on your financial management, discipline, and long-term planning by having your first home.
There is also the advantage of having a place that is completely yours. For a lot of young people, this will be their first time experiencing the freedom and independence that comes with moving into your first home.
Steps To Buying Your First Home
These are some steps to include in your journey up the first rung of the property ladder. One of the most important stages is research.
There are a lot of things that can be checked beforehand, such as your rights and what your money options are.
1. Know Your Options
Unfortunately, not all real estate professionals have your best interest in mind. Some real estate companies may try to take advantage of the fact that you are buying your first home. They might only offer you their preferred mortgage broker contacts, instead of multiple options for you to choose from. Or, they could only be interested in showing you homes that are not within your budget.
This can be a way that they make more money, and it is important to do your research and stay as informed about your rights as you can. This is especially true for younger buyers, who might give off the impression that they don’t know what they’re doing and could be taken advantage of.
Ensure that you are aware of your rights as a buyer, and what your budget is in order to prevent a negative experience or even settling for a place that is of lower quality than you intended.
This wasn’t meant to scare anyone, most real estate agents are professionals on the up and up but you could be an easy target for the bad real estate agents if you are not armed with information.
2. Find a Mortgage That’s Right For You
A mortgage is one of the most important parts involved with buying a home because you will need to check what you qualify for and begin negotiating with your bank or lender. A benefit of entering the property ladder at a younger age is that your mortgage can be paid off earlier.
Mortgages work in similar monthly payments to other utility costs and can help you understand how finances work as a whole.
There are a wide variety of mortgage programs out there for you to choose from the best one for YOU. From conventional to VA to USDA and everything in between. Your state and possibly even local municipality will have options that are specific to your area, so don’t forget to do your research on all available mortgage options.
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3. Learn About Home Buying Programs in your State
Different states can offer different programs and incentives to help you buy your first home, so it’s worth including this as another part of your research.
A good mortgage broker and real estate agent in your local area should know what programs and incentives are available in your area, so make sure you are working with a team of professionals that are experts in the area you would like to purchase a home in.
4. Find a Home
Be realistic about your budget and search accordingly. There is little point in finding a place that you cannot afford, or one that doesn’t have some of the desired features.
Decide on how many bedrooms, what kind of place you like- house or condo, and additional qualities like a big kitchen or 2-3 car garage. This can be a good way to tailor your home search and eliminate some unrealistic options.
Another important thing to consider in this stage is location. Whether you want to be close to a school, friends, or family, many online search engines offer filters to make the search more specific and allow you to see what options are available.
5. Consider Financing Options
Banks want to help you enter the world of property ownership, and whether you want to include some of your savings or rely on mortgages, there are a few options for financing your first home. Most will need deposits for contracts and also down payments, so it might be worth having some of your savings ready when you go to a property showing.
6. Make an Offer
Without rushing or settling on second bests, try not to spend a lot of time weighing out your options. The property market moves so fast nowadays, and you won’t want to miss out on the right place.
Consider making an offer with the help of your Realtor. A good Realtor will be rooting for you and make a realistic suggestion for an offer based on the current state of the market, and all the other factors that go into making a solid offer.
This is why you might want to have your savings liquid or easily available, as you might want to put in an offer right away and snatch up a place fast before anyone else can.
7. Have the House Inspected
A lot of Realtors will have a good idea if a property is up-to-date on its maintenance and inspections, but it is always recommended to get a professional home inspector’s opinion and ensure that the place is structurally sound and uncover all the hidden unknowns.
Ask if there is any work needed and if they can check for signs of potential problems. This will help you to be realistic about additional costs and budget for some of these more drastic improvements if they are needed.
Inspectors can also look for possible signs of pest infestation, water damage, or any factors that are likely to increase the bills in the long run.
8. Close the Deal and Move In
For some popular areas, there can be a little competition to get a place that is in high demand. Try to close the deal as soon as you can to avoid missing any dates that you are contractually bound to in your purchase and sale agreement.
This is why it is important to work through the escrow process, inspections and mortgage approval diligently.
Once this has all been done, your Realtor will tell you about anything that you need to know, and then you should be all set to pick a move-in date. Organize utilities to move over to the new place, or find new suppliers if they are of better value.
Then you can tell people who want to help you move your intended date and start buying furniture, or even set renovation plans depending on what kind of property you want and whether you want to live in it or add improvements straight away.
Other Costs to Consider When Buying a New Home
It’s important to be prepared for additional costs when entering the property market. You will need to keep your savings account topped up and, if needed, apply for a loan.
Survey costs can take chip away at savings or whatever account you plan on using. This can be especially true if you are interested in buying an older property with lots of character. Inspections and surveys can rake up overall moving costs
Lawyer fees are another expensive matter but a necessity. Depending on the complexity of your contract and additional factors such as mortgage duty, lawyers can cost anywhere between $1,500 and $3,000.
Mortgage arrangements will also cost money in addition to offers and inspection costs. Banks often want initial deposits or down payments, and they can have their own fees in addition to this.
Moving costs can vary depending on your circumstances, but if you have a lot of furniture to move in or other people to coordinate, then it can take its toll on your budget. Moving trucks or movers, insurance, and turning on some utilities as well as taking the time off work are all time and money-related factors to take into account beforehand.
Nobody likes moving house, so it might be beneficial to send your kids somewhere for the day or to ask your friends for help so that you have a little fun along the way.
Insurance is another necessity, as you will want to be protected against severe weather patterns, property damage, and other unforeseen circumstances. This is another thing that is worth shopping around for and comparing the best deals.
Like banks, insurance providers often request an initial payment for administration costs or for new customers. This can be something that you speak with your real estate agent, or even lawyer about, to see which company they would recommend.
Decorating and other costs seem like the most obvious cost involved with moving, but it can be pretty expensive nonetheless. That said, you can choose to spread the cost of this in order to make the whole process more affordable.
Most people save the decorating stage until several months after moving in, because of the expenses involved.
Tips After Purchasing Your New House
These are some things that are worth keeping in mind after you have signed the contracts and allowed for all of the additional costs. There are also some common mistakes that you can avoid by checking with the list below.
1. Keep Saving Money
It can be easy to think that you have accomplished everything that you saved for, and that you don’t need to save anymore. Even if you don’t have anything to save money for, keep saving in the same way as you were before buying a home.
You don’t know what additional costs might arise along the way, so it’s best to ensure that you are ready for anything.
2. Perform Regular Maintenance Checks
Whether you work within the trades, you are handy, or you want to pay someone else to carry out the work, it is worth getting the property checked regularly to see if there is any maintenance needed.
This is a common feature for people who choose a historic house because some of the characteristics will need to be maintained over time.
3. Ignore the Housing Market
Once you are fully settled in your home, try to avoid looking online at houses, as it can make you want to move again after very little time.
Wait 5-10 years before moving again if you can, in order to get a portion of your mortgage paid off, allow the dust to settle, and your savings pot to replenish before considering moving again.
4. Do Not Rely on the Sale of Your Home to Fund Your Retirement
This is a trap that a lot of people frequently fall into, and it’s something that can be prevented if you keep your financial options open with a good savings account. You might find after living in your home for a few years that you don’t want to sell it or downsize, so try to avoid relying on the sale of your home for additional funds.
When you do end up selling, you don’t want to have all the equity that you earned to be given away to high real estate commissions. Be sure to research all your home selling options such as flat fee MLS (more information here) or discount real estate brokers (more information here).
Most employers offer pensions that allow you to save for retirement, so there is no need to prepare by selling your home. Another thing worth thinking about is how long you want to stay where you currently live, and whether the benefits of moving outweigh the common disadvantages like money needed.
5. Don’t Immediately Purchase Luxuries
Once you have made the move, you might want to make the place your own with some expensive items. Try to avoid making more significant purchases until a few months down the road, as you don’t know what hidden costs could arise when you’re getting settled.
Make sure that your savings are replenished and use what you have for the time being. There are plenty of thrift stores and online places where you can find good-quality items for your home that don’t cost as much.
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Questions To Consider Before Buying
These are some things worth spending time thinking about before starting your research and investing in your first home.
What is your current financial health?
Whether your credit score needs some work, or if your taste doesn’t fall within your budget, check what financial schemes you can apply for and where your price limits lie. There is no point in allowing yourself to picture a life in a mansion if you can’t afford the initial costs.
You can do a basic credit check using some online calculators, and work out what applies to you. This will allow you to make some changes if needed, and try to work towards a better mortgage scheme if that is something that is important to you.
Younger buyers might have little experience with financial management, which might be why there are more mortgage restrictions.
In addition to this, it is worth checking that your savings account is at a reasonable level ahead of time, as you don’t know what kind of additional costs you could face once you move in.
What is the type of home best suited for you?
Townhouses, apartments, multifamily units, and retirement communities all have their pros and cons. There are a lot of options available depending on the location you want to live in. whether you want something to build on or a home that is ready to move into, it is worth weighing out your options.
Think about where you want to live first, in a neighborhood, the city, or more rural areas. Then, look up which places are available within your budget. This can help you decide what kind of home you can see yourself living in.
What are the specific features that you personally need?
Think about how many bedrooms and bathrooms you need, and what kind of layout works best for you. If you have pets, this is another thing to check beforehand, and if you have children, then you will need to consider proximity to the nearest school as well.
For example, if you struggle with stairs, then you might not be suitable for a townhouse that is spread across several levels.
How much loan can you afford?
Try to be realistic about what your budget will be and how much you can afford to spend on monthly repayments. During the research stage, try to calculate how much you can repay without being out of pocket.
Other factors to consider are home insurance and property tax costs. A common mistake that first-time buyers make is taking out full loans and ending up with very little to spare each month.
How much mortgage do you qualify for?
This is where additional factors like credit score, financial history, and existing debts come into play. It might seem a little backward, but make sure that you have been pre-approved for the right loans before signing the deeds to a home.
It is also worth checking how much mortgage is available to you because a lot of Realtors won’t consult with someone who doesn’t know exactly what their budget is.
Who will help to find a place and guide through the process?
Any good real estate agent will encourage you in the right ways and show you what your options are for a home. It is worth browsing through some common sites to see how previous customers have rated their Realtor experience.
The entire purchase process is made easier with a real estate agent, as they are professionals who negotiate with owners and sellers for a living. They can help you make an appropriate offer, and guide you through the paperwork involved.
Most real estate agents will also suggest some good places to get insurance and what type you should look for.
Should I buy a place with someone?
This can be a good option for young people who want to get on the property ladder but has its own possible disadvantages. If you want to save money and maintain social support or even relationships, then you might want to find a place that suits everyone’s needs.
However, another person has their own preferences, and it can be difficult to find a place that works for all parties involved. In addition to this, breakups or falling out with the person involved can add more complications to the situation.
It can be difficult if you are both tied to a contract and no longer want to live together. Depending on your situation and the stability of your relationship, living with someone can be rewarding as long as you can see yourself living with this person for many years.
Don’t underestimate the power of research. There are many things that you should carefully consider when buying your first home, and finances are one of the most significant factors.
It is definitely worth spending more time in the researching stage so that you can come up with a realistic plan based on your financial situation, loan options, and living preference. There is a huge range of tools available online to help you begin planning your next home.
Check out your credit score and see what that means for banks and other loan institutions to decide what price range to search for.
Try not to be discouraged by lack of options, your perfect house will come along. For some, it might take more time to find the right place.
This might make you want to settle on something that doesn’t tick all of your boxes. If this is the case, it might be worth lowering your standards or working towards increasing your budget by negotiating a pay rise or career change.
It can be disheartening to struggle with the property search, which is why a good Realtor can help you cater your search using filters and show you what other options are available to you.
Some people save money on the purchase of their first home by buying a fixer-upper. This is something that needs a lot of work done to it, and usually takes a lot more time, energy, and money in the long run to make your own.
However, the end result can be very rewarding as you will end up with a home that is completely custom and personal. That said, it isn’t always the best idea to make your first home a fixer-upper, because there are a lot more financial risks that come with it.
It is usually better to invest in something like this when you have some home improvement experience under your belt, as well as a bigger savings pot that you can put into renovation costs.
There are a lot of benefits to getting on the property ladder at a younger age, such as improving your financial discipline, and appreciation for home improvements. However, there is no age limit for buying your first home.
This means that you can enter the world of property at any age, and it does not matter if you’ve taken a little more time to save up. Young people tend to need a little more guidance and support, which is why some real estate professionals will only work with a specific age range.
Make sure that you shop around and look for a Realtor with a high reputation and success rate.
Getting on the property ladder can be difficult at first, but there are a lot of long-term gains that come with making the first steps. A lot of people see the ladder as something to climb, but that doesn’t have to be the case.
You can stay in your first home for however long you like, there is no time limit or expiration date. Try not to rush making your next move, and enjoy your first home for what it is. For many people, moving into their first home can provide a much-needed feeling of freedom and independence.
Being able to fully express yourself in a space that is completely yours to make comfortable and decorate as you like is liberating. This is something that is unique with buying a home, as rental properties often have strict contracts that tenants must abide by.
The ladder concept comes from the belief that once you have paid off a portion of the mortgage on your current home, then you can upgrade or expand. When consulting with your bank or current mortgage supplier, they may offer you the chance to cash in some of these payments and spend it on a bigger house, or a place that fits your changing lifestyle.
Of course, this is something to consider once you are over five years down the road.
To summarize, there are a lot of steps involved when it comes to getting on the property ladder. Make sure that you spend a lot of time researching different loan and mortgage options, as well as the role that your credit rating can play in interest rates.
A good Realtor can make your life a lot easier, and it is worth knowing what your ideal budget is before approaching them. Ensure that you have good savings account that you can dip into when needed to cover additional expenses.
These include insurance, inspections, lawyers, and other hidden costs that come with moving. One of the biggest advantages of buying your first home is the complete freedom that comes with it.
Additionally, avoiding renting is beneficial because it is widely considered “empty money”. Knowledge is power, and informing yourself of all of the possible risks can make you more prepared.
About the Author: Kris Lippi is the owner of ISoldMyHouse.com, the broker of Get LISTED Realty and an official member of the Forbes Real Estate Council. He actively writes about real estate related topics such as buying and selling homes, how-to guides for around the house and home product recommendations. He has been featured in Inman, Readers Digest, Fox News, American Express, Fit Small Business, Policy Genius, Lending Tree, GoDaddy, Manta as well as other major websites. Read more about us here.