First Time Home Buyers
The challenge of buying a home for the first time can seem so daunting that it's tempting to either just go with the first house that falls in your price range or continue to rent. To help you demystify the process and get the most out of the purchase, lets examine what you'll need to consider before you buy, and what you can expect from the buying process itself.
Considerations Before You Buy
The first things you'll need to determine is what are your long-term goals, what characteristics are you looking for in a new home, and the difference between what you “qualify” for financially and what you are “comfortable” with financially. Here are five questions to ask yourself:
1. What type of home best suits your needs?
You have several options when purchasing a residential property: a traditional single-family home, a townhouse, or possibly a condo. Each option has its pros and cons, depending on your home ownership goals, so you need to decide which type of property will help you reach those goals.
2. What specific features will your ideal home have?
While it's good to retain some flexibility in this list, you're making perhaps the biggest purchase of your life, and you deserve to have that purchase fit both your needs and wants as closely as possible. Your list should include basic desires, like neighborhood and size, all the way down to the smaller details like kitchen and living area layout, and number of bedrooms and baths.
3. How much mortgage do you qualify for?
Before you start shopping, it's important to get an idea of how much a lender will actually be willing to give you to purchase your first home. You may think you can afford a $300,000 home, but lenders may think you're only good for $200,000 depending on factors like how much other debt you have, your monthly income, credit score, and how long you've been at your current job.
4. How much home can you actually afford?
On the other hand, sometimes a bank will give you a loan for more house than you really want to pay for. Just like with the purchase of a new car, you'll want to look at the house's total cost, not just the monthly payment. Of course, looking at the monthly payment is also important, along with how much down payment you can afford, how high the property taxes are in your chosen neighborhood, how much insurance will cost, how much you anticipate spending to maintain or improve the house, and how much your closing costs will be.
5. Who will help you find a home and guide you through the purchase?
An experienced real estate agent will help you locate homes that meet your needs and are in your price range, then meet with you to view those homes. Once you've chosen a home to buy, these professionals can assist you in negotiating the entire purchase process, including making an offer, getting a loan, and completing paperwork. A good real estate agent's expertise can protect you from any pitfalls you might encounter during the process.
The Buying Process
Now that you've decided that home ownership is right for you, let's explore what you can expect from the home buying process itself. This is a chaotic time with offers and counter-offers, inspections, and deadlines, but if you are prepared for the process (and the paperwork), you can get through it with your sanity more-or-less intact. Here is the basic progression you can expect.
1. Obtain a pre-approval and secure financing with a reputable lender.
Knowing how much you can afford and a purchase price your are comfortable with is the first and one of the most important steps you will take. First-time home buyers have a wide variety of options to help them get into a home, including federally-backed loans and loans for home buyers who don't have the standard 20% minimum down payment. Loans with 3.5% down and sometimes 100% loans are sometime available. Your state may also have its own programs and incentives for first-time home buyers. Your mortgage interest rate will also have a major impact on the total price you pay for your home, so shop around. It will really pay off.
2. Find a home.
Make sure to take advantage of all the available options for finding homes on the market, including using your real estate agent, searching for listings online and driving around the neighborhoods that interest you in search of for-sale signs. Also put some feelers out there with your friends, family and business contacts. You never know where a good reference or lead on a home might come from.
3. Make an offer.
Your real estate agent will help you decide how much money you want to offer for the house along with any conditions you want to ask for, like having the seller pay for your closing costs. Your agent will then present the offer to the seller's agent; the seller will either accept your offer or issue a counter-offer. You can then accept, or continue to go back and forth until you either reach a deal or decide to move on to another property.
4. Obtain a home inspection.
Even if the home you plan to purchase appears to be flawless, there's no substitute for having a trained professional inspect the property for the quality, safety and overall condition of your potential new home. If the home inspection reveals serious defects that the seller did not disclose, you'll generally be able to rescind your offer and get your deposit back. Negotiating to have the seller make the repairs or discount the selling price are other options if you find yourself in this situation.
5. Close or move on.
If you're able to work out a deal with the seller, or better yet, if the inspection didn't reveal any significant problems, you should be ready to move forward toward closing. This basically involves providing your lender with additional requested paperwork, signing a ton of paperwork in a very short time period, and preparing yourself for the big day of moving into your new home.
Congratulations New Homeowner...Now What?
You've signed the papers, paid the movers and the new place is starting to feel like home. Game over right? Not quite. Let's now examine some final tips to make life as a new homeowner more fun and secure.
1. Keep saving.
With home ownership comes sometime come with unexpected expenses, like replacing the roof or getting a new water heater. Start an emergency for your home so that you won't be caught off-guard when these costs inevitably arise.
2. Perform regular maintenance.
With the large amount of money you're putting into your home, you'll want to make sure to take excellent care of it. Regular maintenance can decrease your repair costs by allowing problems to be fixed when they are small and manageable.
3. Ignore the housing market.
It doesn't matter what your home is worth at any given moment except the moment when you sell it. Being able to choose when you sell your home, rather than being forced to sell it due to job relocation or financial distress, will be the biggest determinant of whether you will see a solid profit from your investment.
4. Don't rely on making a killing on your home to fund your retirement.
Even though you own a home, you should still continue to save the maximum in your retirement savings accounts each and every year. While owning a home is a great way to create future equity; nothing is certain. Like the stock market, home ownership equity should be looked at as a slow and steady process. The market may have periods of growth and sometimes remain stable but in the long term it will provide a much higher return on investment than renting.
This brief overview should help put you on the path towards filling in any gaps in your home-buying knowledge. Remember that the more you educate yourself about the process beforehand, the less stressful it will be, and the more likely you will be to get the home you want for a price you can afford.
Please feel free to contact me with any questions you have about the process or if you are ready to begin moving forward to home ownership. I have enjoyed working with first time home buyers over the past 12 years and would love to work with you on the purchase of your First Home!
Call me! 410-971-0023