4 Things First-Time Homebuyers Need to Know

Buying a home is likely the biggest purchase a person will ever make, and it’s not always an easy one. Low inventory has pushed home prices up in cities throughout the country, giving sellers an advantage. Homes sell fast, bidding wars break out, and offers above the asking price are common. All of this means that buyers need to be on their game and have their finances in order before entering the market.

Here’s what experts said first-time buyers need to know, as shared by money.cnn.com:

1. What you can actually afford

Before buyers start their house hunt, it’s important they know how much they can afford to spend. It’s most important to start with a plan – don’t let your imagination take over and don’t let what you see from friends’ houses drive your budget.

Buyers should list out all of their monthly expenses. Don’t forget to include items like groceries, transportation, and discretionary spending, like gym memberships and nights out. A general rule of thumb is that housing costs shouldn’t take up more than 30% of your before-tax income.

2. You need a buffer

While it may be tempting to throw everything you’ve got at your offer to stay competitive, it’s definitely recommended to have at least some money left over after you close on a home. Experts advised having at least three to six months in savings the day you become homeowners.

3. The true cost of owning a home

The down payment tends to be the biggest financial hurdle to owning a home, but there are many other costs that pop up along the way: appraisal, origination, credit report and notary fees can all add up. And the costs don’t stop just when the keys are handed over. There’s the move, new furniture and costs like lawn care and utility payments that former renters might not be used to paying.

4. Renovations are not as seen on TV

Buying a fixer-upper might allow you to snag a bigger home or afford one in a more desirable area, but experts warned there are huge risks. Know that it is always more expensive than what you are imagining ... or what you see on TV. If a home needs renovations, factor that into the total cost of buying.

A private loan is an option to finance the project, but can be difficult to secure, especially after just taking out a mortgage. If your home appraises for more than you purchased it for, you could have the option of tapping your equity to help pay for renovations. There’s also the FHA 203k loan that allows homebuyers to finance the sale and rehab on a single mortgage.