Advice for First-Time Buyers
The first time you buy a home can be the most exciting and the most nerve-racking experience. In order to make the process a positive one, take this helpful advice for first-time buyers to heart.
It can help you avoid many of the mistakes that first-time homebuyers make and can ensure that you buy the house that is right for you. Here is the general roadmap for happy house hunting!
Before you even begin to start seeing properties and calling agents, you have to get your finances in order. That begins with cleaning up old debts, improving your credit score, and building up a healthy savings to put down a 20% down payment if at all possible. Get this done first.
At the very least, most banks will require 5% down. Just know that lenders will typically require you to pay private mortgage insurance (PMI) if your down payment is less than 20%
Once you have your financial ducks in a row, it’s time to start preparing for the house hunt. The first step is actually going to a bank and getting pre-approved for a home loan.
Keep in mind that pre-approval and pre-qualification are two different things:
- Pre-Qualification: Only tells you how much you can afford for a home.
- Pre-Approval: Tells you how much the bank will guarantee to lend you for a home.
When you go to an open house with a pre-approval letter in hand, the seller knows that you are a serious buyer. Plus knowing exactly how much you are approved for can help you stay within your budget. When budgeting for your home purchase, don’t forget to include other costs that will arise like:
- Closing Costs
- And Other Fees
Know What You Are Looking For
Now comes the fun part for first-time homebuyers. Now you get to put together your wish list for the house that you really want. You will want to have two lists to work from. One list is your list of needs:
- Specific Number of Bedrooms
- Specific Number of Bathrooms
- Square Footage
- Location, Etc.
These are the things that you cannot budge on. These may include a lot of other things like specific school districts or distance from your place of employment. That is your primary list. Your second list is your wants; things that you would love to have but are not a deal-breaker if they are not included. Things like:
- Attic Bedroom
- Finished Basement
- Multi-Car Garage, Etc.
Get Help from a Pro
After you have completed these steps, it is at last time to call in a pro. You have everything you need to give your agent a good idea about what you are looking for. Now let your agent take you through the next exciting steps! Contact Phyllis Ursetta now to discuss your goals for buying a home.
Make an Offer
Coming up with a purchase offer that the seller will want to say yes to is one of the trickier aspects of the home buying process. Phyllis will be a great help here since she knows the local market and will be able to provide you with the necessary comparative market analysis (CMA) and advise you on what price to offer.
Not every offer is going to be immediately accepted, especially if it’s for less than the asking price or if you’re proposing contingencies that the seller may not want to comply with. This is when having a good agent comes in handy. Phyllis Ursetta will take care of negotiating the best terms for you and will make sure that your interests are protected.
How to Negotiate with Sellers
When you are at that point of the home buying process where you’re ready to start negotiating the purchase price, first-time buyers tend to run into problems. As major a purchase as buying a home is, this is the last place that you want to take chances.
Here are some do’s and don’ts that will help you to understand how to negotiate with sellers.
What to Do
First of all you do need to be prepared. The seller wants to get as much money out of you for their home as possible, while you are trying to pay as little as possible. This is why having leverage is crucial when negotiating with sellers.
Asking questions, researching the area and the house, and knowing the local market trends will help you gain leverage. Take for instance a home that has been lingering on the market for an extended period of time. There are many reasons why a home languishes on the market and many of them are negative.
- Home values in the area are falling.
- There are a lot of foreclosures or abandoned property in the area.
- New construction in the area is causing traffic congestion or noise pollution.
- The house is overpriced.
Find out why the house has been on the market so long. Other questions that help you gain leverage include:
- Why is the seller moving?
- Are there any negatives about the neighborhood?
- Is there a lot of turnover in this area? (i.e., lots of homeowners moving out)
- Does the area get flooded in bad weather? (Does the basement get flooded?)
What Not to Do
The cardinal rule for buying a home is to never let the seller know just how much you want the property. That is the fastest way to lose leverage and hand it all over to the seller. Even if you are anxious to buy a house or to get out of your current one, never let on that you are desperate to buy.
Other things that put you at a disadvantage in negotiations with the seller include:
- Telling the seller or seller’s agent your maximum for the house or down payment
- Revealing too much about your own personal financial circumstances
- Making it clear how anxious you are to move
- Letting the seller rush your decision
Establish your own timeline and stick to it. If the seller is in a hurry to close the deal, you may end up paying for it later after inspection. Take your time and do not let yourself be pressured into a rushed deal.
Where an Agent Matters Most
Very few people attempt to buy their first home without the aid of a qualified agent. Those who do take on the task themselves often believe that they will save on costs. However, where an agent matters most is during negotiations. They are in the best position of all to negotiate on your behalf.
In fact, buyers who do not work with an agent tend to spend upwards of $10,000 more for a home than those who can call on the skillful negotiation prowess of a top real estate agent. If you do enough research, you could find the home that you want.
But to get it at the price that is best for you, you need an expert. Contact Phyllis Ursetta today to help you get the best deal!
Types of Mortgages
Most buyers are going to need some type of financing to purchase their new home. Understanding the different types of mortgages out there can help you figure out just which one will work best for your situation. Here are the different mortgage types, how they work, and how to choose the right one.
The fixed-rate mortgage is the most standard type of mortgage for those who intend to stay in their homes. The benefit of this type of mortgage is that the monthly payments do not change. The downside is that neither the interest rate nor monthly payment amount ever goes down. Whatever the interest rate is at the time that your loan starts is the rate that you will have over the life of the loan.
These types of loans are most attractive when interest rates are low so that buyers can lock in that interest rate. As with all home loans, your particular situation will dictate which loan is best for you. Here is how each type of fixed-rate mortgage stacks up against the other:
- 15-Year Fixed Rate Mortgage: Monthly payments are the highest for 15-year mortgages; however, equity builds faster too. The loan is paid off in half the time of other FRMs.
This is the type of loan for buyers who want the stability of a regular monthly payment but want to pay the loan off quicker.
- 20-Year Fixed Rate Mortgage: As you might suspect, the 20-year loan is the middle ground between the other two FRMs. The loan is paid off quicker than a 30-year loan. That means that the amount of interest paid over the life of the loan is significantly less than for a 30-year mortgage.
- 30-Year Fixed Rate Mortgage: Most buyers who choose fixed-rate mortgages go for the 30-year loan. It’s the most stable FRM, with lower monthly payments than either a 15 year or 20 year mortgage. It is easier to qualify for a 30-year mortgage and you can claim a bigger tax deduction each year.
This loan is for people who plan to live in the same place for a long time.
Adjustable-Rate Mortgages (ARMs)
Just as the name implies, the rates on adjustable rate mortgages change. The introductory rate for an adjustable-rate mortgage or ARM is usually lower than a fixed-rate mortgage. However, over time, the rate fluctuates with interest rates.
That means that even if you get in at a low rate, you could end up paying a really high monthly mortgage payment when interest rates go up. The bank that supplies your loan calculates your interest rates based on a particular index.
It is very important to understand the formula your lender will use and to get it in writing when choosing an ARM.
Lenders are capped at a certain amount of interest that they can charge you. Still, when rates go to their highest level, will you be able to afford the monthly payment? That is a very important question to figure out the answer to before you take out an ARM.
These types of mortgages are best if you do not plan to stay in your house for long and can cover any increase in interest rates.
Convertible Adjustable-Rate Mortgages
Convertible ARMs offer a low introductory rate and convert to a fixed-rate mortgage after a specified number of years. When interest rates are low, this can be a very affordable option. However, be aware that when the loan converts, your fixed rate will be set at the future interest rate, not at the lower introductory rate.
Finally there are two main government loans that homebuyers can take advantage of. They offer easy qualification, low fixed interest rates, and affordable monthly payments. However only certain people will qualify:
- FHA Loans: Made for low-income Americans. Qualifications for this loan are based on income.
- VA Loans: Service members, veterans and their spouses are eligible for VA loans. The qualifications differ depending on the branch of service and length of time in the service. VA loans are capped based on a calculation of average home prices from state to state.
Choosing the Right Mortgage
A qualified agent can help you to decide which mortgage type is best for you. Many agents like Agent can help you navigate the process and advise you along the way. Speak to Agent today about choosing the right mortgage for you!
Home Buying FAQs
You’re interested in buying a home, which means you probably have a lot of questions about the process. While there are dozens of questions that any first-time homebuyer has, this is a quick rundown of the most common questions about home buying. Below you will find the answers to those questions to help you get a better understanding of what to expect.
Is it cheaper to buy than to rent?
That is the 20,000 dollar question! The short answer is yes – kind of. If you pay rent for the same length of, say, a 15-year fixed-rate mortgage, your monthly rent payment is likely less than the monthly mortgage payment on a 15-year mortgage. But at the end of those 15 years, as a renter you don’t own the property; while as a homeowner, you do.
One advantage of being a renter is that you do not have to pay for upkeep and maintenance. If you bought a home that needed massive amounts of repairs, you may end up spending more than the renter over those 15 years. Still, even after paying more, you have an extremely valuable asset when the home is paid off. It can be resold for more than what you paid for it and you have equity that you can borrow against that a renter does not.
Can I buy a home even if I have bad credit?
Today, since the housing collapse, lenders have tightened up credit standards. However, it is always best to speak with a mortgage lender to determine exactly what you can be approved for. There are a number of different loan types that don’t require a sterling credit score. In short, don’t rule out buying a home until you’ve talked to a professional.
How much do I have to put down on a home?
Generally a lender will require at least a 5% down payment on your home. That number increases the more expensive the home is. A good rule of thumb is to only buy a home when you are able to put at least 20% down up front. That will reduce your monthly mortgage payment, give you some equity right away, and will help you pay off the loan faster. Also, with a down payment of 20% and up, you likely won’t have to pay Private Mortgage Insurance (PMI). There are some programs, such as the VA Loan, that can require 0% down.
What costs are involved with buying a home besides the down payment?
First of all, there are closing costs, which typically are less than 5% of the price of the home. You’ll also want to factor in inspection and appraisal costs. If you buy a condo or buy a home in a planned community, you may have to pay HOA fees or condo board fees. Lastly, you will now have to pay property taxes…on the plus side you will be able to deduct those costs on your taxes at the end of the year!
Should I use an agent?
Yes! It is possible to buy a home without using an agent, but why not get an expert advice if you can get it? An agent negotiates the deal on your behalf, assists you through the financing process, and has up-to-date market information to get you the best deal.
You can save yourself a lot of stress and wasted energy by finding a trustworthy experienced agent. Phyllis is more than qualified to help you with the entire home buying process. Give her a call now to get answers to your specific questions!
Surviving Escrow and Closing
After you have found the home that you want, made the offer, and gotten the seller to accept it, you have two more hurdles left to clear before the home is yours. It can be a very tense period for both buyers and sellers – but it doesn’t have to be!
One way to survive escrow and closing is to understand the process. If you are using an agent for the transaction, they will help guide you through the process. If you are doing it on your own, you have to have a clear understanding of all of your and the seller’s obligations.
Either way, it doesn’t hurt to know what to expect. Here is what you need to know in order to not only survive escrow and closing, but to close the deal smoothly.
By the time you are ready to put your earnest money deposit into escrow, you and the seller already have an agreement in place for the purchase of the house. That agreement includes contractual obligations that must be satisfied before the deal is finalized. While those things are being done, a neutral third party will hold your down payment in escrow until all terms are satisfied.
This is the step where money starts to change hands, specifically your money. Whatever earnest money deposit you settled on will go into escrow, and the process typically takes 30 days (sometimes more, sometimes less). A title company, escrow officer, or attorney usually is used as the intermediary who holds the money in escrow.
Funds do not get deposited until after all of the terms of your agreement have been satisfied. Still you will have to keep funds available in your account so that when you are ready to close, the deposit goes through. A bounced check could ruin the deal and give the seller an out if they are looking for one.
Two of the main contingencies written into almost all home purchase agreements are financial contingencies and inspection contingencies. There may be many other requirements listed in your contract. These are the hurdles that must be cleared before your escrow check gets cashed, the deal is closed, and the home is yours.
- Inspection Contingency: The inspection contingency basically allows you to back out of the deal if after the home is inspected some major issues that were not disclosed are discovered. This clause protects the buyer.
- Financing Contingency: The financing contingency is designed to guarantee that you have the funds to purchase the home. If you are waiting on a loan approval and your loan is not approved, the deal is off. That is why it is best to get pre-approved long before you get to this step. This clause protects the seller.
At the closing you meet with your agent, the seller’s agent, the seller, and all other interested parties. This is called the settlement or the closing. This is where all contingencies are verified, final documents are signed, and the deed is transferred. There are fees associated with the close, which are paid at the settlement. Typically closing costs are less than 5% of the cost of the home.
It is a good idea to get a title search done – in fact, this is often a requirement if you’re getting a mortgage – so that you can verify the validity of the title and make sure that there are no issues of ownership or liens on the property. Different localities have different requirements for transfer of ownership. Your agent will be able to help verify that you have met all of them.
If you are obligated to pay HOA fees, those will usually have to be paid before close. You will need to get the utilities turned on in your name. And you will have to have homeowners insurance in place. This can take some time; therefore, you should do it as soon as your agreement is in place. Proof of insurance is required at the settlement.
Once all parties have agreed that everything is copacetic, your escrow check gets deposited and you get the keys! You are now a homeowner – congratulations!