First time home buyers often struggle with the down payment. The down payment is often larger than they expect, and it’s only half of the total cost of purchasing your first house, because it does not include any of the incidental costs associated with the transaction. Incidental costs can include:
- home inspections,
- lender fees,
- escrow costs,
- title services, and
- other miscellaneous expenses.
Savings Goal for First Time Home Buyers
Most first time home buyers in Bakersfield will purchase a home between $180,000 and $250,000. To purchase this home, they will likely select an FHA 30-year fixed mortgage. Currently, FHA requires 3.5% down payment. To position yourself for success, you should save $8,750 before searching for your first home. The buyer will need more than $8,750, but this is the portion of the purchase that most first time home buyers ask about. There is more to a transaction than just the down payment, and you should be ready for those expenses as well. (If you are interested in how to save money faster, read our related article on how to get 25% return or more on your savings.)
Fees in excess of down payments
On top of the down payment, the typical first time home buyer will need cash to close escrow and perform investigations. Currently, the average buyer will spend $7,000 on closing costs while purchasing a property. This additional cash is not part of the down payment. This means that if a buyer wants the best chance of finding a good starter home, he or she should save $15,000 to comfortably offer on a home at $250,000 or less. Note, the buyer will only put $8,750 toward the down payment of a home at this price. The rest of the money, the buyer will spend on costs and expenses during the course of the transaction.
Vision Board: Use Zillow
For many first time home buyers, saving money is new. As with most new habits, people show difficulty sticking to them. To increase your chance of success, you should keep yourself focused on the end goal. Although I don’t often recommend Zillow, this is a time where Zillow proves to be useful. Zillow gives you something to dream about. It inspires people to continue saving when unexpected expenses creep up. Use Zillow to provide focus on your journey. When times get hard, refer back to Zillow to remind yourself why the struggle is worth the difficulty to you.
Find a Mortgage Broker Early in the Process
While saving for the down payment on your first home, you should consider meeting with a mortgage broker. The mortgage broker will provide information about currently available loans and tell you how much you could receive based on your current savings and income. The mortgage broker will help you establish a plan toward getting your first mortgage approval. First time home buyers often think that they need to find a mortgage after they select a home, but you should start with the mortgage approval before searching for a home.
Don’t Involve a Real Estate Agent too Early
First time home buyers often start looking for properties before they have money or mortgage approval. They argue that it is an important first step, because if they do not know what the price of their dream home will be, then they cannot know how much is appropriate to save. Although a fair argument, the pictures available on Zillow do a great job of conveying differences between properties, and if you are just starting out, any real estate agent can tell you that you can find everything from fixer uppers to new construction for $250,000 or less.
The average first time home buyer will purchase a property somewhere between $180,000 and $250,000. Those home buyers who are willing to buy fixer-upper properties will purchase between $180,000 and $200,000. Similarly, the bulk of the other first time home buyers will purchase a home that is gently used at a price between $200,000 and $225,000. Seeing the houses in person will not change these numbers, and seeing houses before you are able to purchase them serves only to waste both your time and the real estate agent’s time.
Contacting a Real Estate Agent before saving the down payment can hurt your chances to buy your first home
Involving a real estate agent too early in the process can actually hurt your chances at success. When first time home buyers involve a real estate agent too early, they become frustrated. The real estate agent will try to protect his or her time by insisting on a pre-qualification letter. The buyer, wanting to view houses, but thinking that he or she will not qualify for a pre-qualification letter, will attempt to avoid the mortgage broker at all costs. This creates stress which festers in the buyer’s mind, and that stress works against the buyer as he or she tries to move forward.
Set yourself up for first time home buyer success
The most successful first time home buyers reduce stress by performing the home search in a specific order. First, they save $15,000. While saving money, they meet every six-months with a mortgage broker to update their financial plan and keep updated on mortgage products. When the mortgage broker gives them a pre-qualification letter, they start shopping. This process reduces stress and increases your chances of success at finding a home.
Are you ready to start looking for your first home? Try reading more about the process in the step-by-step guide to buying your first home at a young age.