Read This Before Buying Your First Home
Congrats! You decided to take the plunge and start looking for your forever home. The preparation is not complicated when you understand the home buying process.
Consider the listed information below.
How Much Can You Afford
Consider how much you can afford. A recommendation is to purchase a house that will not exceed 25-30% of your take home pay. Lenders will use the gross income to calculate your mortgage but you can see how this will inflated. When you budget make sure you use your take home income.
You will need to include the mortgage, property taxes, insurance, and/or HOA fees when determining how much you can afford. Remember you don’t want to be ‘house-poor” meaning you have a large monthly payment causing you to miss other obligations.
How Much Cash Will You Need
For first time homebuyers you can ask about a Federal Housing Administration loan (FHA). This loan will require a low down payment of 3.5%.
You can also do 5, 10, or 20% Down payment if you qualify for a conventional loan. Keep in mind with a 20 percent down you will not need to pay a private mortgage insurance.
Conventional 15yr term or conventional 30yr term- You need to consider how long you will live in the house. If this is a starter home and you plan to live in it for 5-10 years I would go with a 30yr mortgage. Your monthly payments will be smaller, $300-600 less a month when compared to a 15yr note.
A 15yr mortgage will require a larger monthly payment but you will payoff much sooner and save lots thousands of dollars.
Choose a bi-weekly payment schedule for either a 15yr or 30yr mortgage. This will save thousands of dollars in interest over the term.
You can choose a 1% deductible to cover you property. This will cover larger expenses like busted water lines, hail damage, mother nature, and fire to name a few. If you want to lower your monthly payment you can choose a 2% deductible. Visit with your insurance company to run the figures.
I would visit with a few realtors before working with one. Ask them questions like the number of houses they’ve sold, how long they’ve been a realtor, and this will give you an idea on how they’ll perform.
Realtors work for you and are well-versed in the home buying process. You will find most are very responsive to your texts or calls.
Don’t be afraid to “fire” a realtor if they are not living up to your expectations. Start the hiring process all over again.
After you have determined how much you can afford you will need to work with a bank to pre-qualify. Most realtors want to know your qualified and will ask if you have a pre-qualification letter.
But even if you’re not pre-qualified don’t let this hold you back from scheduling house tours. Don’t let the qualification process scare you. It is fairly simple as everything is done online.
It’s ok to shop around for a better interest rate. So line up a couple of lending institutes. Rates are fairly low you can get a 3.5% on a 30yr or 2.75% on a 15yr mortgage.
During this process keep in mind:
`Don’t apply for any other loans, i.e. car loans, furniture, credit cards
`Make large deposits in your personal accounts
Your First Home Selection
When choosing houses you want your property to be comparable to the houses in the neighborhood. You don’t want to purchase the most expensive house on the block. If you have to move or decide to sell you may not have enough equity in your house.
The housing market has been competitive and houses are not staying on the market very long. Be cautious of houses that are on the market for extended periods of time. That should set off a caution flag for several reasons: foundation or structure issues, major renovations needed, or neighborhood is questionable.
Home inspection after an offer is accepted
Home inspections are well worth the money and a must-have for home purchase. The fees on an inspection range from $300-$500. Take time to do a walk-through with the home inspector. I find this part to be very satisfying as it provides me a detailed condition of the home.
After you have the inspection report take the time to review it. This is the tricky part. What should you ask for when it comes time to negotiate? This is where first time home buyers struggle. Make sure not to ask for every item listed on the report to be repaired. This will most likely turn off the buyer. This holds true in a very hot market.
If there are major issues feel free to bring those up. The buyer will likely make the repair or make a price concession. However, if you ask for paint color or carpet allowances the buyer will make the process difficult.
In addition to your down payment you will need additional cash to close on your purchase. This will typically be 5% of the purchase price and will be required before you get your keys. The closing cost can be negotiated so go ahead and ask.
The lender will provide a detailed cost estimate and identifies services you can shop for. Some include the home inspection and survey. Non-negotiable fees can include document fees.
Like the house make the offer
I will suggest that if you loved the house go ahead and make an offer. When it is a sellers market the seller will typically have 2-3 offers within a few hours!
Make sure you come in with a competitive offer to keep the seller interested. Trust me it is much easier to for the seller to come to the negotiating table when they have a respectable offer versus a low-ball offer.
How quickly can you move in
The excitement is everywhere! The last leg is where you might see delays. The lender will schedule an appraisal of the property and it will depend on the how busy the appraisers are.
Cheers! You have now been brought up to speed on choosing a realtor, best down payments options and standing out with with a competitive offer. Best of luck on buying your first home!
The material presented is meant to be informative and is not intended to serve as legal, tax, or other financial advice related to individual situations.
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