Purchasing a home is one of the most stressful things a person can do -- especially if you haven’t done it before. There are so many resources out there these days with the internet, but which do you trust?
I tapped some real estate agents to give us a few unbiased tips on how to make the process of buying a first home as low-stress as possible.
Sometimes it’s difficult to determine how much you can afford for a new house. Before you take on a mortgage, think about how much you pay in rent every month. This question can help determine your comfort level with payments. The old rule of thumb is 1/3 of your monthly income, but that doesn't fit everyone's lifestyle. You also need to consider everything that will be changing in your finances once you own a home. A number of costs can increase in your life, especially if you are moving from an apartment into a house. Energy and water bills go up, and you could be tacking on homeowners association fees and maintenance. Be sure to consider these when determining what your monthly payment should be.Once you have a monthly payment in mind, you can work backwards and determine what your purchase price can be. Either your real estate agent or a simple mortgage calculator can help you here.
You should start preparing about 90 days before you have to move or before your lease ends. Expect to be under contract for about 30-45 days of that time. This is the amount of time from when the offer is accepted until you meet at the closing table. You won't have a mortgage payment the first month you own the home, so it's less likely that you will be paying rent and mortgage at the same time if you start that early.
Finding an Agent
It can be difficult to find the right real estate agent for you. Your best resources are your friends and family. Get a referral and NEVER choose an agent at random. If your friend is happy with their experience, chances are you will be too. If they know someone who specializes in first time homebuyers then that is another plus. From the agent’s perspective, if they have taken care of your friend, they will take care of you. They don’t want to jeopardize that relationship.
Finding a Broker
Finding the right mortgage broker can almost be more difficult than finding an agent. Real estate agents know a lot of mortgage brokers, but chances are they have a few on a short list when asked. There are different brokers that can specialize in different loan types. Ask your agent for someone who is also experienced with first time home buyers and the different loan options. The goal is to get pre-qualified. If you do not qualify, then the broker is also a great resource to help you get on the right path. The road is never the same for any two people, so it’s good to work with an experienced team.
Don’t ever feel like you need to work with someone you aren't meshing with. If your gut is telling you walk away then do it. This is a big step and you need to be comfortable with whom you are working.
Many wonder what to have to put down on a home. It really depends on which mortgage program you're going to use but typically the minimum is 3.5% (for an FHA loan). That said, there are banks that can provide mortgages with $500-$1000 down. CHFA also has down payment assistant program available as well. Ask your lender for all of the options you have.
After you have qualified and you know your budget, you can start looking for a new home. Try not to fall in love before the first home inspection. What seems like perfection could be hiding a lot of terrible secrets; maybe even some things that the previous owner didn’t want you to find. Stay curious and asks lots of questions. You are paying the agent to help find your home. They need to be able to field your questions and if they don’t know, they should find out.
That said, don’t turn your nose up at all cosmetic issues. Keep in mind that hardware, light fixtures, and paint can easily be changed once you own the home. Even some "big ticket items" like the furnace and water heater can be replaced. When you are ready to commit, the home should speak to you and you shouldn't buy it for any reason other than you just love it.
The #1 rule of real estate still applies here: location, location, location. You can change a house, but you can't change its location. Look around the block. Go knock on the neighbors doors and "interview" them. There are things that are not required to be disclosed on a property disclosure that their neighbor would love to tell you about.
Home Buying Terms to Know
Throughout the home searching/buying process, you'll likely come across some terms you aren't familiar with. Here are some definition guidelines:
FHA loan: A mortgage issued by federally qualified lenders and insured by the Federal Housing Administration (FHA). FHA loans are designed for low to moderate income borrowers who are unable to make a large down payment. FHA loans allow the borrower to borrow up to 97% of the value of the home. The 3% down payment requirement can come from a gift or a grant, which makes FHA loans popular with first-time buyers.
VA loan: A mortgage made by a private bank to a qualifying veteran that is guaranteed by the U.S. Department of Veterans Affairs. During the credit crunch, obtaining a VA mortgage became the only way one could obtain a mortgage with no down payment.
Bridge loan: This is a short-term loan. A sum of money borrowed to finance something until permanent financing can be obtained, especially one to finance the purchase of a new property until an old one is sold.
CHFA: Colorado Housing and Finance Authority. CHFA offers programs to both, first time and non-first time homebuyers. They also offer down payment and closing cost assistance.
Under Contract: The time from acceptance of offer to the closing table.
Refinance: To obtain new financing for something on different terms, often involving the paying off of an existing high-interest loan by means of a new lower-interest one.
Pre-qualification: The act or process of determining the approximate amount a borrower will be able to borrow before he/she actually applies for a loan.
Parting Thoughts from a Realtor
Never buy a home for any other reason than YOU LOVE IT! Don't be forcefully sold on anything. Depending on your price range, you may have to make some sacrifices, but there are lovable abodes in every price range. What is so important about this AH HA experience, is that if you love it, someone ELSE will love it. So not only will it be a great, supportive place for you to create your life, it will also be easy to RESELL when the time comes.
Which brings me to the next important point - start with an exit strategy. Think, "OK, how long do I want to live here? Is the neighborhood up and coming and or reaching the end of its desirability? When do I want to sell? What kind of person will it sell to in the future?"