For many newlyweds, buying a house is one of the next steps after getting married. Building a new life, starting a family, and creating new memories in your own home can be very important.
Financially, buying a house can also be an investment to help grow your net worth and put you on a path to financial freedom.
Hopefully, you have discussed buying a home with your spouse and you are on the same page. To help, we have put together a complete guide to buying your first home as a newly married couple.
Renting vs. Buying a Home
For some couples, buying a home may seems like the natural thing to do. Your parents likely own their home, so it could seem like the easy choice to do the same.
Before you jump into buying a house, make sure you are in a situation that makes sense to do so. For some married couples, it can make sense to rent instead of buying. It all depends on your personal situation, cost of rent, and how much you have available for a down payment.
The first question to ask yourselves is how long do you plan to stay in the same area. If you think you may want to change jobs or relocate in the next few years, it is safer to rent. Generally, owning a home only makes financial sense if you hold it for a minimum of 3 to 7 years.
Next, do some research to see how much rent costs in your area. Compare that to how much you would have to pay for a mortgage, including taxes and insurance. Here is a great rent vs. buy calculator to help determine when it makes sense to buy a home.
In my situation, our rent would be around $1,600 per month and our mortgage is around $1,564. Our breakeven point is 4 years, meaning we would have to stay in our home for at least 4 years to make financial sense. Since we knew we would be in our house for at least 7 to 10 years, it made sense for us to buy.
Make Your Wishlist and Then Prioritize
Once you have decided to buy a home, put together a list of the features you want in your first home. This should include the type of home, such as a single family house, condo, or multifamily house. Think about what style you prefer, age of the house, must-have features, and if you are willing to do renovations.
You’ll also need to determine the geographic area you that want to focus your search on. You will likely want to be close to your jobs, family, and entertainment.
Once you have your full wish list, go through it again to see what you are willing to compromise on. Be realistic so that you know what you will be willing to negotiate on and what things are mandatory. By prioritizing the features you must-have in your new home, you’ll be better of with finding the perfect home for your family.
Another thing to consider is if you will try to rent out a room or second space to help reduce the cost of your mortgage. If you can find a suitable roommate, you can split your housing costs and be able to save more money.
Determine Your Timeline
Think about when you want to actually purchase your first home. If you just got engaged, think about if you want to get married before or after the wedding. Are there other significant life events coming up that you need to schedule around? How about a vacation that you already planned?
Creating an approximate timeline for buying your home will allow you to better plan your finances. Having enough time can help to build your down payment or pay down other debt that can impact your credit score.
Buying your first house is very exciting but don’t rush into it too quickly. Since it will probably be the biggest purchase of your life, take enough time to plan it out. If you don’t have enough money for a down payment, think about pushing off buying a house until you are more financially ready.
Get Pre Approved for a Mortgage
As you start your house search, you’ll want to get pre approved for a mortgage. This is a process of working with a mortgage broker to determine exactly how much mortgage you can afford.
They will take all of your financial statements and calculate how much house you can afford. This is based off your income, debt, and estimated expenses.
Mortgage pre approvals tend to be on the high side, so be sure to do your calculations to determine how much you can afford.
Set Your Monthly Budget
When you’re buying your first home, I highly recommend coming up with your own budget for your home. Never take your mortgage pre approval at face value, since it could be considerably more than what you are actually comfortable paying.
Instead, build your home buying budget by looking at your finances holistically. Calculate exactly how much reliable income you make each month after taxes. From that, subtract out your basic cost of living expenses along with a buffer for entertainment and saving.
The amount you have left is what you should be able to comfortably pay per month towards a mortgage. You can now compare it to your mortgage pre approval to make sure it makes sense and that it stays within your comfort zone.
One of the most important pieces of buying your first home is to make sure you can afford the monthly payment. Take as many factors into account when creating your budget so that you don’t get burdened with debt that you can’t afford.
Gather Your Down Payment
Besides the monthly mortgage payment, you also need to set a budget for your down payment. This is the amount of money you have saved to put towards the overall principal.
The most common down payment is 20% because it lets you avoid PMI, or private mortgage insurance. PMI is a fee that is imposed if you don’t have a minimum down payment of 20% and could be up to 2% of your mortgage.
If you’re ok with paying the extra PMI fee, you could purchase a home with a minimum of 3% down. Keep in mind that a smaller down payment will increase your overall mortgage loan and monthly payment.
The amount you put down will depend on how much you have saved and if you will have any other upcoming expenses. Keep in mind that you may need to put some of your cash towards closing costs, repairs, and startup costs like new furniture.
Determine the amount of money you are willing to use as a down payment and how much you are able to save before your closing date.
Research Online
Now that you know your budget and wish list, start researching to see what types of home fit your criteria. Zillow and Trulia are two great real estate website to get started looking for properties.
Just set your filters and search your target geographic areas. Hopefully, there are enough options for you to pick from but you may need to expand your filters, if there are not.
By doing some research, you’ll have a good idea of what types of properties are available. This will help your selection process once you start working with a real estate agent.
When my wife and I bought our house, we essentially found our house ourselves through Trulia. We knew what we wanted and were able to find the perfect house ourselves.
Partner with a Real Estate Agent
Buying your first home is a learning process. There are many pieces that you may not fully understand or be aware of, like the home appraisal and insurance. This is where working with a helpful real estate agent can be extremely helpful.
As you are looking to buy your first home, you will want to work with a trusted real estate agent. Speak with a few different agents first and then pick one that you trust and get along with. They will serve as your advisor, so it is important that they are knowledgeable and personable.
Even with plenty of research, don’t feel bad about asking your real estate agent to explain the process. Besides helping to find houses, this is what you are paying them for.
Find a Mortgage Broker and Attorney
Like your real estate agent, your mortgage broker and attorney will be two other trusted resources. Your real estate agent may be able to refer you to ones they think will work well for you.
A mortgage broker will help you get a mortgage loan and make that whole process easier. They should be able to help you get the best interest rate and explain any questions on escrow, insurance, and payments. Finding the right mortgage broker could help you save money for the rest of your loan.
A real estate attorney is a good idea for first time home buyers since they will make sure you are covered legally. Especially if you are buying a house through foreclosure or short sale, you’ll want to make sure your bases are covered. Even in a normal real estate sale, having an attorney look over the paperwork is certainly worth the money.
Close on Your Home
Once you find your perfect home, it’s time to make it yours. Work with your real estate agent to make a written offer that makes sense for your situation. In some cases, you may be able to bid under asking price. In other situations, there may be a bidding war that drives up the cost.
In either case, your real estate agent will be able to provide guidance on how to best win the home.
Once the seller accepts your offer, you will work with your mortgage broker to finalize your mortgage loan. This will include getting home insurance and taxes set up in an escrow account.
During this process, you will likely need a home appraisal and want to get a home inspector to make sure there are no significant structural issues. If there are, you can go back to the seller to try to negotiate to include some of the repairs in the cost.
Finally, your real estate attorney will finalize the paperwork and get everything in order for you. At this point, you’ll sign a stack of papers and submit your down payment.
You are now the proud owner of your first home! Now it’s time to make it yours and start settling in with your partner.
