First-Time Homebuyer's Guide

Whether you are buying a house for the first time or building a new home, you have entered an exciting stage of your life. You might imagine yourself relaxing in a cozy living room or enjoying drinks with friends on your back patio. When you invest in a house, it feels good to know your own property, especially if you're used to renting.

Homeownership brings many pleasures, but also a lot of responsibility. As a new homebuyer, you're probably wondering how to buy your first house, and you might feel overwhelmed. Buying or building your first home is a significant commitment, so you want to do things right. At SK Builders, we're excited to help you from start to finish.

Since 1994, we've worked with many first-time homebuyers. We've seen people make mistakes and learn valuable lessons throughout our years of experience. Although there are plenty of things to know for first-time homebuyers, the journey to homeownership is usually well worth the effort. As partners with McAlister Realty, we look forward to sharing first-time homebuyer tips and advice with you.

In this guide, we'll show you everything from mortgage recommendations to tips on buying a house for the first time. We'll also talk about mistakes to avoid based on what we've seen. Let this be your complete guide to buying your first home.

According to the National Association of Realtors (NAR), first-time homebuyers made up 35 percent of all homebuyers in 2017. When are you considered a first-time homebuyer? The U.S. Department of Housing and Urban Development defines a first-time homebuyer as an individual who:

• Has had no ownership in a principal residence for three years before the date of purchasing a home
• Is a single parent who has only owned a home with a former spouse while married
• Is a displaced homemaker and has only owned with a spouse
• Has only owned a residence not fixed to a permanent foundation
• Has only owned a noncompliant property which cannot become compliant for less than the cost of building a permanent structure

As you can see, you might qualify as a first-time homebuyer even if you've owned a home before at some point in your life. It's essential to know whether you are technically a first-time homebuyer because you might be eligible for special mortgage programs

Factors to Consider as a First-Time Homebuyer

If you are a first-time homebuyer, the first step to buying or building your new home is to determine why you want to be a homeowner. Many people buy homes because they are tired of throwing their money away on rent, while others want a home to celebrate their independence and financial stability. However, we've seen people purchase properties well before they were ready to commit to a single location or another person. To make certain you're prepared to take the leap, ask yourself the following questions.

1. What Type of Home Fits Your Lifestyle?

How do you imagine your dream home? Do you enjoy privacy and spending time outdoors? If so, you might be happy about building a single-family home on a piece of land. If you prefer to be close to everything like shops, schools, and hospitals, you might consider purchasing a townhouse or condo.

Think about how your new home will meet your needs and help you reach your goals. Consider factors that are most important to you and that you are not willing to sacrifice before you start house shopping.

2. How Much Can You Afford?

Perhaps the most important factor in buying your first home is knowing what you can truly afford. Owning a home does not just require mortgage payments. As a homeowner, you are also responsible for home maintenance costs, property taxes, homeowner's insurance and more. Even if a bank offers to lend you half a million dollars for your new home, that does not mean it's a good idea to borrow that amount. Make sure you can handle the costs of your first home comfortably and still have money left for necessities like food, clothing and utility bills. Also, you'll probably want to furnish and decorate your home and make it your own.

You also need to consider how much down payment you can afford. If you want to avoid mortgage insurance, it's best to make a down payment of at least 20 percent. Mortgage insurance protects the lender in the event of foreclosure. However, if you cannot afford 20 percent upfront, you can go with a lower down payment and likely have to pay mortgage insurance.

3. Do You Qualify for a Mortgage?

Before you contact a realtor or home builder, you need to know if you can get a mortgage. Lenders will consider factors such as:

• How much debt you have
• Your monthly income
• How long you've been at your current job
• Your credit history
• Your debt-to-income ratio

Generally, lenders will not give you a home loan if your debt-to-income ratio is greater than 43 percent, and they prefer to keep housing expenses such as taxes and insurance to about 30 percent of your monthly gross income. Make sure to get pre-approved for a loan by applying for a mortgage before you make an offer on a home. Shop around for a lender first so you can compare interest rates and fees, as these vary considerably. At SK Builders, our preferred lender can walk you through the process and help you with financing options.

If you wish to build your first home, getting a loan is a bit trickier, but it's not impossible. You might consider getting a construction loan. A construction loan, sometimes called a self-build loan, is usually shorter-term than a conventional mortgage and covers the cost of building your home. You'll also need a larger down payment. At the end of construction, you can convert your building loan into a mortgage.

4. Do You Have Enough Savings?

One of the best first home loan tips is to make sure you have enough savings. After your financial institution has approved you for a mortgage, you'll still need to have saved money to cover the down payment, closing costs, and other fees that come with buying your first home.

5. Who Will Help You Through the Process?

Buying or building your first house can feel frustrating at times, but you won't be doing it alone. If you are buying your first home, a real estate agent will assist you throughout the entire process. They will also help you avoid mistakes.

If you're seeking to build your first home, a reputable building company will guide you through the steps and help you make informed decisions.

6. What Type of Floor Plan Is Right for You?

Whether you are buying or building your first home, you will want to become familiar with reading floor plans. A floor plan lets you look down into the home from above to see the layout. Floor plans include details such as dimensions, doors, staircases and major components like bathtubs and sinks. A floor plan can change your decision about the home you choose to buy or build. Consider the following factors when browsing floor plans.

• Your lifestyle: How does this home fit your lifestyle? Do you have enough space for a home office or hobbies you enjoy? Does it fit your future goals? Picture yourself living, working and playing in the home.
• Your long-term plans: Five or 10 years from now, you might need more space than you thought when you first bought a home. Perhaps you'll have children, or a relative will need a place to stay. Try to choose a floor plan with some flexibility and which is big enough for the present and the future.
• Window placement: Think about window placement and views you wish to have. Consider where the sun hits the home, as well as your privacy.
• Changes needed: As a first-time homebuyer, you can expect to make a few changes to personalize your home. Some features, like a garage, are generally easy to add. However, if a home requires major changes, consider if it's worth it or if you should look for a different floor plan.
• Your decorating style Imagine your decorating style and how it fits with the floor plan you're considering. For example, if you have an eclectic style, an open floor plan should work fine. On the other hand, if you like to use a variety of furniture or wall colors, separate rooms might be the better choice.

SK Builders makes it easy to browse floor plans online. You can compare prices, sizes, and layouts with easy-to-read floor plans. We are happy to work with you to customize any floor plan you choose.

Deciding Whether to Buy or Build Your New Home as a First-Time Buyer

Choosing whether to build or buy your first home is a tough choice because both offer distinct pros and cons. Ultimately, it all depends on what is most important to you and what you can afford. We'll look at the advantages and disadvantages of both to help you move forward with a decision.

Building a Home Considerations

1. Why Build Your First Home?

Building from the ground up is rewarding in many ways. First, it's the product of your unique vision. It allows you to create a home specifically to meet your needs and lifestyle. Also, it's satisfying to spend time in a home you designed, and it's exciting to watch the transformation. In general, here are the benefits of homebuilding.

• Superior technology: When you build your first home, your builder will not use outdated materials or methods. They will use the latest technology to build strong, comfortable and level homes.
• Design options: You get to choose from a variety of styles and materials to design your home from the inside out. Whether you want historic charm, contemporary flair or the most cost-effective option, the choice is yours.
• Low-maintenance: New homebuyers are looking for homes that require the least amount of maintenance. When you build a home, it's likely the builder will use durable low-to-no-maintenance products throughout.
• Energy efficiency: Building a home can promote health, safety, and lower utility bills because you can create an energy-efficient home. A low-cost heating, ventilation and air conditioning system, for example, is a huge benefit to building your own home and can save you thousands in the long run.
• Peace of mind: When you build a home with durable materials, you can enjoy peace of mind. You don't have to set aside funds for surprises like a roof leak or a broken hot water tank. You'll have long-lasting products backed up by warranties.

Despite the rewards of building and living in a home you designed, there are a few drawbacks to consider, as well.

• Construction time: It could take six months or longer to build your new home, regardless of your builder's level of expertise. Factors such as weather conditions or labor shortages can also affect construction time.
• Unexpected costs: It's possible costs will run over your budget because many variables affect building a home. A good builder will help walk you through what those variables are and how to control those costs when you can.
• Construction loans: As discussed earlier, you will likely need to get a construction loan to build your home. Construction loans are more expensive than the standard mortgage, although they convert to mortgages after construction wraps up.
• Your time: When building a home you design, you are an essential part of the process. You will need to be able to dedicate time to the project and making decisions.
• Extra necessities: With a built-from-scratch home, you'll need to add many items during and after the construction process. Consider costs of landscaping, furnishings, appliances and other extras you'll need to complete your new home.

Lastly, you'll need to build your home on land you own. Searching for a lot to build on also requires careful consideration. You'll need to think about factors such as zoning regulations and the size of the lot before construction begins. Use resources like your local zoning and planning department to research everything you need to know about the lot you are interested in.

2. The Building Process

The building process takes some time, but for many homeowners, it's well worth the wait. In general, you can expect the following timeline for building a new home:

• Choose a lot
• Select a builder
• Contact a lender
• Select a floor plan
• Customize and upgrade the floor plan
• Draft a contract with the builder
• Watch your home take shape
• Close on your new home

According to Angie's List, building a new home can take anywhere from four months to a year. With SK Builders, the timeline is around eight months, with a 60-day extension to allow for delays such as weather, order changes or labor shortages.

3. House-Building Price

In general, the average size of a home is 2,467 square feet. The average cost per square foot ranges from $103 to $150. That puts the total cost of building a new home somewhere between $290,000 and $305,000 on average. You can go much lower or higher than that, depending on many different factors. Here are some items that make up the cost.

• The Shell: The shell includes the home's walls, windows, doors, and roof, and makes up about a third of the home's costs. Homebuyers can expect the total cost of windows, doors and garage doors to be around $12,000, while roofs cost about $10,000. Siding such as vinyl costs about $4 per square foot, while brick and stone veneers typically cost between $11 to $15 per square foot.
• Interior finishes: Interior finishes include the cabinets, counters, and flooring, and make up another third of the cost. For example, carpeting is the least expensive option at about $3 to $5 per square foot, while hardwood flooring is about $9 to $12 per square foot. On average, expect to spend around $13,000 on flooring.
• Mechanical systems: Mechanical systems such as plumbing and electrical systems cost about $36,000 to be up and running.
• The Land: This makes up a small percent of the costs, as the typical home sits on less than a quarter-acre of land. On average, land costs about $3,000 per acre.
• Fees: Homebuilding costs also include fees for architects, building permits, inspections, and other government requirements.

Buying an Existing Home Considerations

1. The Buying Process

Buying an existing home is typically a quicker process than building, but it still takes some time. You can expect the following timeline for buying a home.

• Get a pre-approval: The first step in buying a home is getting pre-approved for a mortgage. This process depends on your financial situation. If your credit score is on the lower end, it could take months to improve it. If you're in good shape, you can get pre-approved, which looks attractive to sellers. As a first-time homebuyer, you have plenty of financing options to help you, and many programs offer minimum down payments as low as 3 to 5 percent for first-time homebuyers.
• Find your home: Home shopping takes time because it is more than just browsing listings. You need to schedule times to tour the home before you make a decision, and it could be a while before you find the best home for you. According to NAR, homebuyers typically look at an average of 10 homes over 10 weeks before making a decision. Make sure you have an agent to help you through the process and do not do an open house without one.
• Make an offer: Look at your budget before making an offer and consider estimated closing costs, which can be anywhere from 2 to 5 percent of the purchase price. Also, think about utility bills. You might request bills from the past year to get an idea of monthly costs and avoid surprises. Once you consider all these factors, work with your real estate agent to decide how much you want to offer for the home. Your agent will present your offer to the seller's agent, and they will either accept your offer or give you a counter-offer. This process will continue until one side or the other makes a decision.
• Get a home inspection: Despite the appearance of your new home, you want a professional to inspect the home to ensure it's safe. If there are major repairs the seller did not disclose, you can ask the seller to make the repairs or reduce the selling price before closing the deal.
• Close the deal: If the inspector did not find any significant problems, you're ready to buy. During this time, you'll do a lot of paperwork. Also, closing might involve doing a title search to make sure no one else owns the property, getting mortgage insurance and other factors your agent will help you with.

House-Buying Price

Many different aspects affect the value of a home, but the most obvious ones are the location, size, neighborhood, amenities and the condition of the home. According to Realtor.com, the median home listing price in South Carolina is $230,000, or $120 per square foot.

How to Figure out Monthly Mortgage Payments

As a first-time buyer, you're probably looking for a guide to mortgages. There's a lot to know, so we'll cover a few basics here.

First, a mortgage basically asks a bank to pay for the cost of your house with the agreement you'll pay them back. Like most loans, the bank will charge interest for loaning you money. The more money you put down on your house, the lower the amount you'll owe over time.

A mortgage has four parts: principal, interest, taxes, and insurance, or PITI. It gets broken down in the following ways.

• Principal plus interest: This is your monthly mortgage payment, which is the agreed-upon rate.
• Taxes: This is the annual property tax. South Carolina has some of the lowest property tax rates in the country. The average tax rate is only 0.59 percent.
• Insurance: This is your home insurance. In South Carolina, the average monthly home insurance cost for 2018 is $103, according to Valuepenguin.com.

To figure out your estimated monthly mortgage payments, you can use an online mortgage calculator to give you an idea of what to expect. For example, say you purchase a home for $150,000, with a 20 percent down payment of $30,000. Your estimated monthly payment would be $1,043 for a 30-year fixed-loan term and includes the principal and interest, property taxes and homeowner's insurance.

If you're having a hard time saving for a down payment, you can explore government-sponsored mortgage options for first-time homebuyers, Federal Housing Administration loans or U.S. Department of Veterans Affairs loans. A 30-year loan allows for the smallest monthly payments. However, larger monthly payments with a 20-year or 15-year loan offer lower interest rates.

First-Time Home-Buying Tips

Here are a few more tips for new homebuyers to keep in mind.

• Get the right agent: Your real estate agent will be your partner through the whole process. Choose someone you feel comfortable with and who is also experienced, skilled and knows the area well.
• Choose the right neighborhood: Make sure to thoroughly research the neighborhood you're considering before committing. Do your homework on nearby schools, look at crime statistics, consider hospital locations and other amenities that affect the home's value.
• Be firm with your budget: Keep your budget in mind and stick to it. Look for properties that are less than the amount you were approved for because your loan doesn't account for all your monthly expenses.
• Take advantage of open houses: Use this time to be very observant and pay attention to smells, stains or maintenance needs. Ask the seller plenty of questions, such as when the home was built and how old the heating system is.

Mistakes First-Time Homebuyers Make When Building a House

Over the years, we have seen first-time homebuyers make a lot of mistakes when building their first home. We'll share them here so you'll know what to avoid.

• Settling on a lot: Many first-time homebuyers settle on a lot because it's the only one left where they want to live. However, the lot is vital, and you shouldn't settle. You want to make sure you not only like the size and shape of your lot but that you also feel comfortable with its location.
• Being your own contractor: You might think it can save money to build your home yourself, instead of hiring a contractor. However, unless you have the experience, it might not be the wisest choice. Contractors are skilled at what they do and will help you avoid problems and unnecessary expenses.
• Making another big purchase: First-time homebuyers might be tempted to buy a new car or make another large purchase while building their home. However, it's best to wait until after you're set with a mortgage because a big purchase could change your debt-to-income ratio and affect your loan eligibility.
• Thinking short-term: One of the most common mistakes people make is failing to do long-range planning. You'll probably live in a custom home for many years, so think about how much space you'll need in the future, too.
• Making changes during the construction phase: You'll want to make any changes to the floor plan as early as possible or before construction begins. Changes during construction are more expensive and could lead to delays, which also affect costs.
• Skimping on amenities: You'll save money with energy-efficient windows or appliances. Prioritize your amenities and think about future savings, not just money you'll save upfront.
• Going too unique: Sometimes people are tempted to go over the top with their home's design. However, if your home is too unique, you limit your pool of buyers if you decide to sell. Although we encourage designing a personalized home, think about resale value and if you'll grow tired of the design five or 10 years from now.
• Choosing the wrong builder: You need a quality, dependable, experienced builder to make your dream home a reality. Make sure you choose a reputable company, do your research and ask plenty of questions ahead of time.

Mistakes First-Time Homebuyers Make

Common mistakes first-time homebuyers make include the following.

• Not considering closing costs: First-time homebuyers might forget to include closing costs in their budget. Make sure to not only save for a down payment but costs to cover homeowner's insurance, inspections and title searches at the end.
• Not saving enough for move-in expenses: Your first house won't feel like a home if it's empty. Make sure to include furnishings, appliances and any upgrades you want to make in your budget.
• Missing the opportunity to negotiate: First-time homebuyers can save a lot of money through negotiation. You might be able to get the seller to pay for certain repairs or part of the closing costs, so it's something to try.
• Not knowing what the inspection includes: Not all inspections check for mold, radon or other concerns. Talk to the inspector to know exactly what they look for and make sure they can access every part of the home, including the roof.
• Not buying enough insurance: You might be quick to go with the most affordable insurance, but this could lead to higher costs in the end. Shop around and know what each policy covers. Also, consider homeowner's insurance doesn't cover everything, like flood damage. You'll need to purchase flood insurance separately.

Homebuyer FAQs

In this guide, we covered a lot of the basics to get you started with more confidence. Your real estate agent, lender or contractor is there to help answer your questions along the way. Here are a few more FAQs homebuyers often ask.

1. Can I use Gift Funds for a Down Payment?

Yes, you can use money you received as a gift toward a down payment for your new home. However, certain restrictions apply. Generally, for lenders to accept a gift fund, it usually has to come from a family member or spouse. It also depends on the loan you wish to get. For example, if you're taking out a conventional loan, all your down payments can be gifted if it's 20 percent or more. If the gift is less than that, some of the down payment has to come from you.

You'll also need to provide a letter stating the name and relationship of the gift donor, the amount, the date and a statement that there is no expectation of repayment. You might also need to show other documents, such as bank account statements, to prove the funds are going from the donor's account to yours.

2. Does It Cost Money for a Homebuyer to Hire a Real Estate Agent?

No, homebuyers get to use real estate agent services for free because the real estate agent gets a commission from the seller.

3. What Are Points?

Points, also known as discount points, are optional. They involve a one-time payment and give homebuyers access to discounted mortgage rates. Buyers who plan to sell or refinance in a few years usually do not benefit much from points.

4. What's the difference Between Fair, Good and Excellent Credit Scores?

Credit scores above 720 are considered excellent. Those between 680 and 719 are considered good credit scores. Credit scores between 620 and 679 are considered fair. You need a credit score of 500 or higher to get a mortgage approval.

The Best Builder for First-Time Homebuyers

Buying or building your first home is an unforgettable and thrilling experience. However, it's natural to feel overwhelmed with first-time homebuyer information. SK Builders and McAlister Realty teamed to make the process easy, whether you want to buy, build or remodel.

For more than 20 years, SK Builders has been serving upstate South Carolina, building beautiful homes, providing exceptional customer service and proving our dedication to customer satisfaction. We offer innovative house plans and semi-custom options for faster and more affordable custom building, never sacrificing on quality or durability. Our partnership with McAlister Realty helps us choose the perfect location for building your new home. If you want to buy an existing home rather than build, we invite you to browse our listings.

With SK Builders, you get the best of both worlds. Contact us to learn more information, or view our existing floor plans today.