It is harder than ever to take your fist step on the housing ladder. There is a huge disparity between the average wage and the average house price and this means that first-time buyers are older than ever before.
If you go back just two generations you’ll find a time when couples were married and living in their own house by the time they were in their mid-twenties. These days, young couples often have to choose between a wedding or a house, and there are huge delays in getting both of these things.
In fact, the average age of a first-time buyer is vastly approaching 34, and for many employees working minimum wage jobs they may be reliant on their parents and on rented accommodation well into their forties.
If you’re stuck in this situation yourself, take onboard these top ten tips for first time home buyers.
1. Be Reasonable
We all want what we can not afford and this is especially true for people who have spent a lot of time living with parents or living in rented accommodation. If you lived with your parents in a nice suburban house until you were in your early twenties and then you rented a large apartment for a few years by yourself, it’s only natural that you will look for something similar when it comes time to buy.
But doing so could price you out of the market. You need to be reasonable, to understand what you can comfortably afford, and to stay within those limits.
Sit down with a pen, paper and calculator and work out how much you can afford to spend every month and how much you have in your bank. Include everything that you spend now (from monthly subscription services to food) and everything that you will need in your new house (from furnishings to insurance and maintenance).
The figure you arrive at all likely be a lot smaller than you imagined, which is why you’re going to need to scale down the size of that house/apartment you have in your head.
2. Leave The Area
We don’t always make sensible decisions when it comes to the location of the house we choose. It’s perfectly normal to want to live near to where you work—even though you should look for houses that you can commute to—but if you are self-employed and can afford the benefit of choice, why are you focusing on an expensive city center location?
The excuses we tend to make include, “I want to live near my friends and family”, “I live this area,” and, best of all, “But I’ve always lived here.”
You would be surprised at how drastically the house prices can change once you start venturing away from popular areas. And you’re not living in the middle-ages. It’s not like you’re going to sever all ties with your friendship circle just because you live 20 miles away. If you have a car, if you know how to use public transport, and if you have the internet, you have the means to contact them and to spend time with them.
Don’t spend more money on less of a house just because you have ties to that area that you don’t want to break.
3. Know the Area
If you are not familiar with the area already, then become familiar with it. Work with a local agent, drill them as much as you can, and take regular trips around the neighborhood.
Go there during the day, at night, on weekends, during holidays. You don’t want to end up in a bad neighborhood, with neighbors who will make your life a living hell.
Take a look at My Local Crime and Crime Reports to see if your area is a crime hotspot and if you’re still not sure, ask the neighbors themselves. Look for a family, an old couple—someone who looks like they don’t cause trouble and ask them what they think.
4. Prep Your Credit Score
There are things that you can do to improve your credit score, but these take time. So, don’t leave it too late and make sure you check your credit score as early as you can.
If there are issues that you didn’t know of, mistakes that shouldn’t be there, or things that can be easily fixed, you will have the time to deal with them before applying for your mortgage. Read our guide to the Differences Between Major Credit Bureaus to see which one you should go for.
5. Spend Sensibly
In the run up to buying a house you need to spend sensibly and take out sensible lines of credit. There are some things that will help you, but there are other things that will hurt you. It’s important to know the differences between the two and to focus only on the former.
What To Do:
- Avoid too many hard checks.
- Don’t open unnecessary accounts, including checking accounts.
- Use secured credit cards.
- Pay off debts (or as much as you can).
- Leave paid-off credit cards active.
What Not To Do:
- Take out a new unsecured credit card.
- Take out a payday loan.
- Take out a personal loan.
- Purchase a car with an auto loan.
- Open new checking accounts.
- Add more debt.
There are several important things to consider here:
- Ratio: Your debt-to-income ratio is one of the most important aspects of your credit rating. The more of your credit you are using, the worse your score will be. That’s why it is important to keep paid-off cards active (all credit; no debt) and to pay off as much as you can.
- New Accounts: The more checks and the more new accounts there are, the more of a hit your credit score will take.
- Red Marks: Any defaults, missed payments and other negatives will reflect badly on you. These need to be fixed.
It doesn’t matter if you have already applied in principle and have been told you can get a mortgage. What matters is that without these issues, from the excess debt to the defaults and hard checks, you could get a better deal on that mortgage. And that’s important when you’re talking about such a significant line of credit, because the smallest of percentile changes could add up to thousands of dollars over the length of the mortgage.
6. Don’t Take the First Offer
Once you have built up your score and you are ready to start applying, it’s easy to get tempted by the first offer that you receive. After all, we all know that hard checks are bad, which means that more applications equal a lower score and a smaller chance of those applications being accepted.
But those initial queries should be soft checks at the most, which means they will not harm your credit score. What’s more, the vast number of mortgage providers out there and the huge ways in which they differ mean that you can save thousands of dollars just by shopping smart.
Don’t take the word of agents and advisors. They work with specific lenders who give them a cut every time they send a customer their way. It’s a commission deal and it means they can’t always be trusted to find you the best deal. For that, you need to do some legwork yourself.
This is especially true for anyone with a credit score of 750 or more. In those cases you are the customer that every lender wants to do business with. They are the ones who should be coveting you, not the other way around.