Owning a home – the dream of it has become a part of our culture and a milestone almost everyone hopes to reach at some point in their lives.
THE PROSPECT OF being a first time home buyer is exciting and scary all at once. Despite what you hear in the news, now may be the ideal time for you to purchase your first home. It’s important to look at your individual circumstances and assess this for yourself. A CHASE Team Realty Agent can guide you and will have you consider a number of items.
TO BUY OR NOT TO BUY
When you begin to consider purchasing your first home, the initial and most important question to answer is whether the time is right for you to take this significant step.
Home ownership presents many financial rewards. As your home appreciates, you will establish equity in the property. And your property taxes and the interest you pay on your mortgage are tax deductible. Renters miss out on these advantages.
Buying a first home is little more than a dream if your finances don’t support your intentions. Before you begin your search, you must take an objective look at your situation and evaluate the numbers to see what you can afford. Make sure to include property taxes, utilities, insurance, and maintenance costs in your calculations. The affordability calculator on Centry21.com is a useful place to start.
Once you have a feel for what you can comfortably afford. It’s time to obtain a pre-qualification and pre-approval letter from a reputable mortgage lender. The amount the lender is willing to loan you will be calculated by your debt-to-income ratio. Basically the lender will tally your housing an non-housing expenses and compare to your gross earnings. The federal Housing Administration (FHA) suggests that mortgage payments not exceed 29% of your gross income, and total expenses should not exceed 41% of income.1
FINDING THE NEEDLE IN THE HAYSTACK
The best advise when you begin your home search is to reconcile what you want with what you can afford. Most of us would have a stately mansion, but it is a waste of time to look at homes that don’t match your budget. Creating a wish list can be a helpful exercise to prioritize what you actually need, what would be nice to have and what can be compromised if necessary. Your agent can explain what is and is not realistic and will work hard to find you a wonderful home within your budget. As you create your wish list, consider the following:
- Location: where can you picture yourself living happily?
- Age of Home: newly built or resale.
- Property type: wooded lot, grassy yard, waterfront.
- Amenities: central a/c, pool, finished basement.
Of course, your home should appeal to you- after all, it will be where you live for some time. Do keep in mind that unusual features and locations may work against you if you sell in the future.
YOU’VE FOUND THE HOME: WHAT’S NEXT:
Once you’ve conducted your property search and found a home you are interested in, yourCHASE Team Realty Agent will help you make a competitive offer. As you come to a number, you should consider how much you have for a down payment, how much you would like to spend monthly and how much you are qualified to borrow in a mortgage;
- Down Payment – This is how much money you will put toward the home. The typical down payment is 20% of the home’s purchase price, but programs exist for first-time home buyers, such as FHA loans which require less money down. Your agent and a mortgage broker can give you additional information.
- Closing Costs – When ownership of the home is transferred, certain fees will be required of both parties. You will receive an itemized list called a HUD-1 Uniform Settlement Statement, which outlines all the closing costs involved with your real estate transaction.
- Mortgage/Annual Percentage Rate (APR) – There are various mortgages on the market. Your mortgage is a long-term loan, and it is important that you understand the conditions before you sign. Talking with a mortgage specialist will help you determine what will work best for you and your individual circumstances.
- Conventional/Fixed Rate Mortgage – These mortgages combine principal repayment with interest to determine your payments, which will remain level for the life of the icon – typically 15 or 30 years.
- Adjustable Rate Mortgage (ARM) – These loans allow the lender to adjust the interest rate periodically in accordance with a specified index, as agreed to at the inception of the loan.
- Convertible Mortgage – These adjustable mortgages can be converted to fixed-rate mortgages during a predetermined time period within the life of your loan.
MAKING AN OFFER
Hooray! You’ve found the house. Now, it’s time to make an offer. Your CHASE Team Realty agent will help you structure your bid based on a variety of factors, including current market conditions, competition and how much of a mortgage you are pre-approved for. Once you have determined the price you are willing to pay, your agent will present your offer to the seller and/or seller’s agent on your behalf.
Do not be concerned if your initial offer is countered. This is customary. Your CHASE Team Realty Agent will represent your interests as you and the seller come to an agreement on a price and terms.
Once both parties agree, you will be entitled to conduct professional inspection of the property. Though some buyers waive the inspection, it is prudent to hire an experienced home inspector to make sure the property is as it seems. Based on the inspector’s findings, you may need to renegotiate the sale price or terms. It’s best to know if there are any serious or expensive problems with the property before they become your problems.
Here are some other questions you might want to ask:
- Is the home at risk for natural disasters (fault lines, flood areas, tornadoes?)
- Are there any building or zoning codes you should be aware of that might thwart remodeling/expansion efforts?
- Where is the fire hydrant/fire department located?
PRIVATE MORTGAGE INSURANCE (PMI)
Home buyers who put less than 20% down on a property are usually required to carry private mortgage insurance (PMI), this insurance protects the lender from losses should they default on the loan. Premiums are based on the insurance carrier and the size of the mortgage. FHA loans require a different type of insurance.
THE ROLE OF YOUR CREDIT SCORE
You have most likely heard about the value of having a high credit score. But what exactly does that mean? Basically, your credit score is the number used by lenders to estimate the risk of loaning you money. Experience has shown that borrowers with higher credit scores default less often on loans. Therefore, lenders tend to give the best rates to borrowers with the best credit history.
If you are worried that a bad or a limited credit score will hinder your home buying, ask your mortgage broker about FHA loans and consider contacting the local government to see if there are any local home-buying programs that you qualify for.
Besides covering the repayment of principal and interest your mortgage payment usually includes taxes and insurance. Your lender conveniently bundles all these charges into one payment but then divides the payment once it’s received. The portion that goes toward taxes and insurance is kept in a mortgage “escrow” account, which is drawn upon as payments come due.
CLOSING THE DEAL
At last, it’s time to transfer property ownership. Prior to closing you will be entitled to walk through the property again before the transaction is finalized. After the walk-through, the closing is usually attended by you, your lawyer, the seller and/or his or her attorney, your mortgage broker, and possible the real estate agents. You will be expected to bring photo identification, or requested documents and a cashier’s check for money owed as outlined in your HUD-1 statement. Many documents will be signed – make sure you read and understand each one. This is a big financial commitment. Once the paperwork is signed, the home is yours!
A ROOKIE NO MORE!
You first real estate transaction is usually the most daunting, because it’s all new to you and each step is unfamiliar. Your CHASE Team Realty has the expertise to answer the questions you don’t even know to ask, to represent your interests and to champion your needs. He or she will be there every step of the way including the joy and celebration that comes with successfully purchasing your new home.
Why Use a REALTOR®
Would you go to court without an attorney? Of course not! Likewise, why would you buy a home without the professional services of a licensed REALTOR? As a home buyer, the services of your REALTOR are typically covered by the seller meaning you don’t pay a dime! How amazing!
1 Federal Housing Authority (FHA), Debt to Income Rate. 2008