couple cheers champagne glasses

First-Time Homebuyer Tips in 2018


Making the financial leap into homebuying? The purchase of a home is a work in progress, not something that can be complete overnight. Research is crucial when it comes to a large purchase that you will be paying off for many years. Everyone’s financial status is different and you’re not the first person in the world that is purchasing a home, there are many that have gone through this process just like you.


It is a bit terrifying but with the correct tools and financial stability, it will be hopefully smooth sailing until the keys are in your hand.


What is more economical – rent or buy?


There are many that would argue against buying a home or renting. What do you think? The rent vs. buy calculator can facilitate the decision by putting both sides into perspective. Renting may be a bit less than a monthly mortgage payment but in the long run, it may be a harder financial hit.


Renting - pros & cons

Pros

Cons

No home maintenance costs

Rent price always rises!

Less research time

Pet upcharge

Never worry about selling a home

Never gain anything back from rent payment


Home buying - pros & cons

Pros

Cons

Tax deduction is available

Down payments and closing costs are pricey

Build long-term wealth

Property taxes

After end date payment – home is yours

Homeowners insurance is required if you finance

Gain equity in the home every month

Selling can be difficult and take months


An affordable monthly payment is key. For many, renting is a great option to save up enough money for a strong down payment along with the extra closing costs.


How much ‘home’ fits into my budget?

Never kid yourself, a home has to fulfill your desire but also be comfortable for your monthly expenses. Buying a home can quickly escalate from an asset to a liability which is a problem that can be prevented from the beginning.

There is a home affordability calculator that is quick and easy to use for you to determine an affordable home price. It simply asks for your annual income, down payment and amounts of other monthly debts to help settle on a comfortable amount to spend on a home. The calculator also clarifies the debt-to-income (DTI) ratio meaning the percentage of your gross income that is being paid towards your debt.

The lower DTI, the better – it provides a better chance to have many loan options.

When beginning to budget, take into consideration everything you spend monthly such as utility bills, transportation, insurance, food, and other expenses.


quarters stacks with homes on top

Research all mortgage options

Let’s start at square one. What is a mortgage?

A mortgage is a legal agreement in which a person borrows money from a lender under certain terms to buy a home or real estate. There are many mortgage loans available, so your personalized mortgage may be different than others.

Here are a few:

Conventional mortgage loans

Conventional mortgage loans follow the guidelines set by Fannie Mae or Freddie Mac, which are two government-sponsored enterprises that invest in the lending of money. It is a little more difficult to obtain a conventional loan compared to others.

Conventional mortgage requirements:

  •       - Minimum credit score of 620

  •       - A debt to income ratio of less than 36%

  •       - Loan amount less than $417,000

VA mortgage loans

VA mortgages are offered to veterans, active-duty personnel and spouses of active/past members. The Department of Veteran Affairs tries to assist members as much as possible, one outstanding option they offer is no or little down payment.

FHA mortgage loans

FHA mortgage loans are great for first time home buyers because you don’t need an extremely high credit score and your down payment doesn’t need to be as large as other loans.

How do I start the mortgage process?

A mortgage takes a lot of research on the lender’s side before they agree to allow someone to borrow thousands of dollars. They have to weigh the risks that will come along with lending. The mortgage company will look into your personal information such as your credit history, your debts (if any), income sources and more.

Pre-approval comes first

A common mistake that is made when you start the home-buying process is that you start looking for houses before knowing how much you could potentially borrow from the lender. It should be step one.

Go to your mortgage lender and ask to be pre-approved, this way you can look for homes in your price range without guessing or assuming the amount you may receive from the lender.

It is a quick and easy process; the lender will verify your incomes and any assets you may have. They will also consider your debt-to-income ratio to determine how much they could potentially lend without high risk. Lenders will work with you so starting the relationship off strong from the beginning is a plus.

Once pre-approved the mortgage company will give you an official letter stating the amount you have been approved for. Home sellers look for that when they meet with potential buyers because it shows that they are serious.


real estate agent with his hand out to give a handshake

How do I choose the right agent?

Your real estate agent is your best friend in this process, they are the ones who set up appointments on your behalf and who shows you potential homes in the area and price range that suits you. Your agent should be familiar and comfortable with the area along with everything from school ratings to crime rates. He/she should be on your side the whole way.


There are questions that you can ask your agent to know you picked the correct one:

  •      - Are you a full-time or part-time agent?

  •      - How long have you been an agent?

  •      - Have you had successful sales in the area?

  •      - What do you charge for your services and what does it include?

  •      - Do you have past clients that I can contact as a reference?



Home Hunting - the exciting part!

The location is everything when it comes to choosing the correct place. You don’t want to spend a big financial chunk of money if the area doesn’t suit you. Take into consideration the community, if you have kids, look for family-oriented areas with activities and things to do on the weekends or holidays. Here are some home hunting tips that might be helpful when looking around. 

The school districts for the area is a big thing to consider when children are involved. Education is number one for the little brains of our future. Your agent will know what school is zoned for the neighborhood you’re looking into.

The commute to and from your everyday job is another thing to consider because it can slowly turn into a burden if you have an extra hour or two in the car driving to work.

Really take time into looking at a home that you will love every time you step through the front door. Like mentioned above, your agent is your friend through the process, so they will not let you settle for a bad home. They are there for support and to give you provide you with helpful information about the home and the area.


Offer time!

After hours and hours of searching and looking for a home. You’ve found the home of your dreams, now comes the offer. It is always important to look at what other houses in the area sold for to make sure your offer is aligned with the general property price. Negotiation regarding purchase price comes into play when the offer is being thought of. If the seller counteroffers then you can either accept or make a new one. There will hopefully be a middle ground to meet at when it comes to price. Both parties should be content.

There are often times where the seller agrees to pay some of the expenses on behalf of the buyer if you can negotiate along those lines. Expenses such as closing costs or fees.


For first time home buyers it can be a bit overwhelming to handle alone but following the correct steps and having a great agent by your side, pieces should fit like a puzzle.