3 things first-time home buyers need to know about buying
First-time home buyers face many challenges in achieving home ownership. Between student debt and record-low housing inventory, money and availability are two of the biggest challenges. But knowing some of the things to expect can help first-time home buyers plan for a successful home ownership future. Today, we’ll look at three things first-time home buyers, especially millennials, need to know and expect about home buying.
- How much first-time home buyers can expect to spend
- Prepare to go over budget
- Be ready make multiple offers
How much first-time home buyers can expect to spend
The median home price in the United States is $379,100, according to the National Association of Realtors (NAR). But the cost of a home varies by region.
Gaining entry to home ownership and reducing the cost of home ownership
One way for first-time home buyers to gain entry to home ownership is to know your budget and be realistic.
A strategy you can use to understand your budget is to track it monthly. Compare your take-home (net) pay to your monthly fixed expenditures, such as groceries, car payments, and student loans. Once you know the things you must spend on, you can then begin to determine whether you need to start cutting discretionary spending and/or increasing saving to afford a down payment and monthly mortgage payment.
It’s also important to be realistic in budgeting. It’s easy to say that you’re going to cut down on discretionary spending or save more money but much harder to practice. Make your goals realistic and achievable, and don’t try to overhaul your lifestyle all at once.
Though there’s no easy fix to the cost of home ownership, there are ways for first-time home buyers to reduce the costs of home ownership. One way is to work with a real estate agent who has excellent negotiation skills. In fact, this is one of the most sought-after traits first-time home buyers look for in agents. A good negotiator can help you find a home you want at a price you can afford.
Prepare to go over budget
Because of rising median costs, low inventory, and an even lower availability of traditional “starter homes,” first-time home buyers should expect to go over their budgets.
This is another reason why it’s so important for you to understand your budget and be realistic. Even with the best planning, some parts of the buying process will be outside your control. You may end up finding a house you love within your budget, only to learn that you’re going up against several cash buyers who can offer more than you.
Addressing the issue of going over budget
There are a few ways you can address the issue of going over budget.
- Find a different house. The simplest solution can also be the toughest to follow through on. But sometimes, you simply have to deal with the fact that you’ll get outbid (more on that later). This is a great reason to work with a knowledgeable real estate agent. They’ll know which offers you can push and which you should just walk away from. They can also help you find another attractive home fairly quickly.
- Build in wiggle room in your budget. As you’re looking at your budget, determine your ideal range and your hard ceiling. For example, your ideal range for a home may be $350,000–$375,000, while your hard ceiling may be $400,000. Don’t go over your hard ceiling, but do give yourself wiggle room to go up to it, if possible. Being disciplined in your discretionary spending is key to this strategy.
- Negotiate incentives. As you begin to approach your hard ceiling, start negotiating incentives. For example, you and your agent might request that the seller include a home warranty. A home warranty—especially one from 2-10 Home Buyers Warranty (2-10 HBW)—could protect you from having to pay expensive repair costs when the home’s major systems and appliances break down. This can reduce the overall cost of home ownership by offsetting common repair costs. Sellers include home warranties more often than any other incentive, so don’t be afraid to ask for one.
Be ready make multiple offers
First-time home buyers should expect to make several offers as they look to buy.
Depending on where you live, you may find that you need to make three or more offers before you buy your home. If you can’t purchase with cash or obtain a conventional loan (i.e., putting at least 20% down), you may find it even harder to compete. Between couples with dual incomes and deep-pocketed investors, you’ll likely have stiff competition. However, working with a good real estate agent and having a plan can make the dream of home ownership more achievable.
2-10 HBW offers the most comprehensive home warranty coverage for homeowners. Let us help you protect your home.