There are few things more rewarding than buying your first house. But your excitement and enthusiasm could quickly wane if you’re not sure what to expect along the way.
Home buying is a complicated and time-consuming process. But with the right information and the best real estate agent, you’ll be celebrating homeownership with confidence.
Here are tips for first-time homebuyers.
Avoid Emotional Attachment to a Property
One of the first things hopeful buyers do when they feel like they’re financially prepared to buy a house (and sometimes sooner!) is to start the house-hunt online.
It’s so easy! It may take you no time to find a house that ticks off all the boxes on your wish list that tucks nicely into your anticipated budget, and matches the vision you hold of your dream home. The problem is that by the time you’re prepared to make an offer, the house may have already sold to another buyer.
There are other reasons to let logic rule over emotion.
Assuming you’ve got your financial ducks in a row and are ready to pull the trigger, you may come up against competing offers, one of which might be more attractive to the seller. Just because you make an offer doesn’t mean you’ll get the house.
Even when the seller accepts your offer, there’s still a chance the deal could fall through. For example, your lender requires you to have the house inspected and appraised, which could change the dynamics of the deal.
The inspection ensures that the foundation, structure, and major systems of the house, such as the roof, heating and air, plumbing, and electrical properly function. If any problems are discovered, you can either ask the seller to fix the issues, negotiate a lower selling price to accommodate repairs, or, in the worst-case scenario, the deal will fall through.
The appraisal verifies that the home you’re buying is worth the amount that you’re trying to borrow. If the house doesn’t appraise for the sales price, you can attempt to negotiate a lower price, or terminate the contract.
So, as exciting as it is to start the house-hunting journey, it’s important to separate your emotions and look at the endeavor as a business transaction.
Know Your Estimated Cash-Out-of-Pocket Expenses
To qualify for most standard home mortgage loans, buyers pay a twenty percent deposit. The lender will loan you 80 percent, and you’re responsible for the remaining twenty.
However, there are exceptions, such as with a VA loan backed by the Department of Veterans Affairs, and FHA loans, among others. But generally speaking, you’ll need thousands of dollars (in some cases, tens of thousands) on hand for your down payment.
Another expense you’ll have off the top is an earnest money deposit, which is usually about one percent of the home’s value. You’ll submit this earnest money deposit with your offer to show the seller and the lender that you’re serious about buying the property.
Additionally, buyers pay closing costs at the end of the transaction. Closing costs are accumulated fees and expenses accrued during the closing process. These costs include the appraisal and inspection, but also include property taxes, homeowners insurance, attorney fees, lender fees, clerical fees, escrow fees, title insurance, and more.
The lender is who determines your closing costs and may, on some occasions, be willing to negotiate those expenses. You may also consider negotiating closing costs with the seller so that you’re not carrying the full burden of thousands of dollars out-of-pocket at closing.
And, you don’t want to be house poor; an emergency fund or a little nest-egg can go a long way if you find yourself in a pinch, particularly with home repairs.
Secure Pre-Approval for a Home Mortgage Loan
In the home buying process, one of the best things you can do is secure pre-approval for a home mortgage loan.
Applying for a home mortgage loan is a time-consuming process. It can take up to 90 days from the date you apply, and that’s if you’ve got all your paperwork and credit in order.
Before you apply, research lenders. Since lenders determine the majority of your closing costs, it’s important to compare. Plus, armed with information about competing lenders, you might find one who is willing to negotiate those costs.
For a lender to approve your home mortgage loan application, your credit score should be no lower than 620. The more elevated your credit score is, the lower your interest rates will be. But it’s not just your score that lenders consider. They also review your credit history to assess how well you’ve done borrowing money and paying it back on time.
Another thing lenders will factor in is your debt-to-income ratio. Add together your total monthly debts and then divide that sum by your gross monthly income. Your DTI is best at 36 percent or lower and should not exceed 43 percent.
You can improve your credit score and your DTI by paying down debts and rectifying outstanding accounts.
You’ll need a mountain of documents, so try to have your papers in order before you apply. Documents include pay stubs, tax returns, proof of additional income, bank statements, credit card statements, and verification for any assets, sources of income, or expense you have.
Getting pre-approval also defines your absolute home buying budget. You’ll know precisely what price point you’ll be shopping in, with the help of your real estate agent.
As an added bonus, pre-approval may give you an upper hand in the event of multiple offers. Sellers often choose a pre-approved buyer over a buyer who hasn’t yet started their home mortgage loan application process.
Be Realistic with Your Wish List
Chances are, you’ve spent years daydreaming up the perfect home. You may be envisioning wood floors, granite countertops, a large yard, open floor plan, large living spaces, and live close to conveniences like public transportation, shopping, dining, and recreation.
Unfortunately, the combination of those things doesn’t usually fit within a first-time buyer’s budget.
One of the biggest influencing factors in home values is location. You may have to choose between finishes, upgrades, floor plan, and size in order to live in a setting in proximity to a wide array of amenities. Or, on the other hand, you may compromise on location to keep the design details in the home you’ve imagined.
The real estate agent you hire can assist you in reviewing and refining your wish list and can help you understand current market values.
Purchasing real estate is a huge commitment. The journey to homeownership is both exciting and stressful. You have the ability to ease the process by knowing in advance how to prepare.
Don’t attach to a house until you have the keys in your hand. Have your finances, credit, and debt-to-income ratio application ready, as well as any documentation you might need for proof of income, assets, and expenses.
Get pre-approved for your home mortgage loan so that you’ll save time later, know your budget, and prove to a seller that you’re empowered to buy.
Be realistic with your wish list and be willing to compromise if necessary.
Trust your real estate agent to provide you with more information to help you reach your goal of homeownership.
Have Questions? Ask Marilyn!
Your real estate agent is the best source of information about the local community and real estate topics. Give Marilyn Richesin a call today at 360-386-2045 to learn more about local areas, discuss selling a house, or tour available homes for sale.