Tips for first time home buyers
A house is likely to be the biggest purchase you ever make, which can make home buying equally terrifying and thrilling. If you’re preparing to buy a house for the first time, pour yourself a glass of wine, take a deep breath and read these tips for first-time home buyers. The home-buying process is complicated and infuriating at times, but you can figure it out if you follow some sensible guidelines.
Calculating your budget.
Buying a new home is expensive — and not just because of the down payment. Remember the following when calculating your budget:
Depending on the contract you’ve worked out with the seller, you may also be responsible for closing costs. Altogether, mine totaled nearly $10,000.
Moving isn’t cheap, and I say that as someone who has had to move six times in the last decade. Consider the cost of movers (or a truck rental), new identification and vehicle registration, and the cost of breaking your lease if you are moving mid-lease from a rental. Will you receive a security deposit from your current landlord?
nOT ONLY WILL A GOOD CHUNK OF YOUR MONTHLY PAYMENT…
…be put toward interest (especially at first), but your monthly mortgage payment will also include:
• Homeowner’s insurance costs,
• Property taxes
• Homeowners’ Association Dues
• PMI (private mortgage insurance). If you
can’t afford to put 20% down on your
home, you will likely be required to pay
When you rent…
…your landlord is responsible for replacing old appliances, installing new roofs and windows, and generally fixing anything that breaks. When you own your home and your water heater stops working, you’re on your own. Most re-sale homes will come with a home warranty. Make sure the seller pays for the first year (that’s typical) and that it covers ALL of the appliances. If you have a pool, get the coverage for the pool equipment.
When buying a house, don’t pour all of your savings into your down payment. Leave some savings for new furniture, appliances, paint, carpet and window coverings. Unexpected expenses, like a broken garage door or washing machine can hit hard as well, or the basic emergencies not related to your home, like job loss or hospitalization..
Spend no more than three times your annual salary on a house, but use that as a guideline. By no means do you have to spend that much on a home.
If you have multiple jobs but don’t plan to keep them both long-term, only consider one income when budgeting. Likewise, if you or your partner plans to become a stay-at-home parent in the future, do not consider that income when determining your price range.
One of the main benefits to buying a new home…
…is the tax benefits associated with buying vs. renting. Talk to your tax professional or a well-trained Loan Officer can assist you in increasing your monthly take-home income as opposed to getting a large tax refund in April. It’s just a matter of adjusting your W-4 through HR.
aBOUT DOWN PAYMENTS.
When purchasing a house, you’ll almost always need a down payment. The size of the down payment will depend on the cost of the home and the type of loan you secure (more on that in a bit), but no matter what, it isn’t likely to be cheap.
If you’re not planning to buy a home immediately, reduce your monthly expenses now and put the savings into the bank. Look at your expenses. Look at everything. Separate them into wants and needs. I need coffee in the morning, but not Starbucks. How much can you save by taking the time to make your own coffee, for example?
Can you get a gift from family or take out a loan from your 401(K)? Speak to your parents or a tax professional to see what the pro and con are for each situation.
reasons why you should get your own real estate agent.
When buying my home, I strongly suggest that you develop a relationship with your own agent. A buyer’s agent. They will drive you around from listings that are available. You may think you will get a better deal by going directly to the listing agent, but in my 20 years as a mortgage lender, I strongly suggest that you have an agent who will negotiate all aspects of the transaction to your benefit and explain the contract so you understand it.
As fun as it can be to visit open houses and browse coastal mansions you can never afford online, a real estate agent will be able to help you find properties that are REALLY listed for sale. Not stale listings or “insane deals” to get you to call them. They probably are trolling for new buyers which is not very ethical. Agents have access to the multiple listing service (MLS) and can show you homes you might otherwise never find. Agents in their office may know about “pocket listings” or ones coming on the market soon.
Why & how to get pre-approved for a loan.
You’ll want to get pre-approved. A current client couldn’t qualify with her bank because the Loan Officer didn’t know that non-taxable income is increased for qualifying purposes. The lowest rate is not always the best option for you. Online lenders will give you a great rate, but their lack of training for employees and small selections of programs may inadvertently keep you from buying THAT house. An online lender couldn’t qualify one of my buyers, but I got them into their dream house with a first-time home buyers program. Spend some time researching loan options online, conventional loans, FHA loans (Federal Housing Administration), VA, rural buyer or city specific programs to increase home ownership in their town.
Don’t open new credit card or lines of credit (Wait until you have the keys in hand). Your credit score plays an important factor in securing a loan. It’s a red flag to lenders if you open a new line of credit, even if they’ve already committed to the loan and you’re a day away from signing.
Before visiting your first home, ask your chosen lender for a pre-approval letter. A pre-qualification is useless, and I strongly suggest you use a local lender. Getting pre-approved means you complete an application, the lender pulls you credit and you provide the lender with your income and assts. If they only get the information from you verbally, or an online, “mini-application”, you have a weak letter. Online lenders have a horrible reputation for not closing on time. This can cost you additional penalties from the seller, rate lock extension fees and possible have you lose the house, and your deposit
What to look for in a Home (With a home inspector).
You can easily and cheaply change a lot about a home. If you’re not crazy about the walls, you can paint them. If the carpet is hideous, you might be able to rip it up and restore the original hardwood floors for under $1,000. (We did ours for just $700.) However, there are certain things that can’t be changed or are much more expensive to resolve. Roof and windows: When was the roof last done? How about the windows? Are they good windows that will keep utility costs down? Foundation: Are there foundation issues with the home that could necessitate expensive repairs? Appliances: How soon will appliances need to be replaced?
You should always get a home inspection…
…before buying a home. In some states, home inspections happen before you make the offer. In other states, they happen after offer acceptance, but the contract is contingent upon the inspection. If you’re not happy with the findings, you can still back out of the sale. You are allowed to be at the inspection. You can direct the home inspector to focus on an area that has you worried, and you can ask questions as you go.
Ask about signs of potential water damage, the age of appliances like the furnace and A/C and any other areas that might catch your attention. A truly good inspector, however, should be thorough enough to answer any questions you have before you even ask.
Don’t forget to take a closer look at the neighborhood.
You will likely be living in the area for at least five or 10 years, if not the rest of your life. Make sure you are satisfied with the neighborhood, including access to work, groceries, restaurants and hospitals; the level of traffic; the crime rate; and the typical noise. Visit the neighborhood at different times of the day and different days of the week, and pay attention to how many cars drive through, if there are loud dogs barking, etc. It’s also a good idea to drive to and from your work during rush hour to see how unbearable the commute is.
As a first-time home buyer,
the entire process of buying a home can be intimidating.
You’ll likely lose some sleep (and maybe some hairs if you pull too tightly), and at some point you’ll probably reconsider the whole idea and Google “how to live off the grid in a tent.” But if you persist, ask good questions and rely on family and friends for support, you’ll get through it. And soon enough, you’ll have a place to call your own.