First Time Home Buyer Considerations
Buying your first home is a major step. There’s a lot you need to know to make the right decisions – and also to avoid making the wrong ones.
If you know what you’re doing, or if you’re working with a highly-experienced Above Par Homes REALTOR® who does, this market offers fantastic opportunities to get a great home at a great price with low interest rates. There are also loan assistance programs that you may qualify for.
Owning Versus Renting
Owning a home does comes with responsibilities and risks that you don’t have when you rent, such as a mortgage, taxes, homeowner’s insurance, maintenance and repairs, to name a few.
However, financial advisers – not to mention homeowners themselves – say there are far more advantages to owning:
Historically, it has trended that over time, you’ll lose money by renting instead of owning your own home. Why not build up equity in a home instead of paying your landlord’s mortgage?
Not to say that we haven’t seen market drop but, historically owning a home has been a sound financial investment.
There are many tax benefits, such as deducting the interest you pay on your mortgage and property taxes from your income tax.
It’s also an investment in quality of life for your family.
You always hear the term “Pride in ownership”. It feels good to own your own home and make the changes that make it your own. You know that when you plant a tree you are going to see it for as long as you like. It’s not putting money into someone else’s home. It’s yours!
Don’t waste time. Find out if you qualify.
It’s much easier than you think. Contact Above Par Homes and we will be happy to recommend several lending institutions. Or, go to your bank, credit union or call a mortgage company. They can perform a credit check, and analyse your financials. Typically, they can give you a preliminary assessment in just a day or two.
There are many people out there who just don’t realize that they do qualify for owning their own home and in a lot of cases pay less for a house payment than rent.
Did you know that with as little as 3.5% down, a $150,000 home is still under $1000 a month?
Also remember that if you qualify for a VA loan those are 0% down. And, there are other programs out there currently that could have closing on a home with as little as $1000 out of pocket.
Now is still a very good time to purchase a home. Mortgage rates are historically low. Housing prices are good but with a steady appreciation. There are still some bank owned homes and short sales on the market. Builders are building new homes again.
The reality is, if you are currently renting, this is a great time to at least find out if you are qualified to purchase a home. So talk to a knowledgeable, experienced Above Par Homes REALTOR® about your options.
Your REALTOR® will not only be able give you the information on available real estate in your area but also help with guiding you towards the mortgage programs available to you.
Did you know that all of the work a Above Par Homes REALTOR® does to help you find, finance, and purchase a home is all free to you? All REALTOR® fees are paid for by the seller!
The loan process – finding the right lender for you
Very few people are able to pay cash for their home, so finding the right loan that fits your needs is very important. You should shop for your financing as diligently as you do for you home. Get information from at least 3 sources before deciding on a lender. Many offer different products and programs that may help you with closing costs, down payments or funds to do any necessary repairs. Here are some steps to help you decide what is right for you.
Education – know your options
Search the web and familiarize yourself with different types of loans. The three main types of loans are FHA, VA and Conventional. However, with the different programs that are built into each it can make for a myriad of options. The first two are government backed loans and require less money down but higher fees and possibly higher interest rates built into your monthly payment amount. The third requires more cash up front but less on the back end. Search websites like Trulia or REALTOR.com®. Read books and news articles, attend seminars, and most importantly talk with mortgage brokers, lenders, and knowledgeable Above Par Homes REALTORS® who can all help you make your way through the labyrinth of financing possibilities. Remember education is power and free so do your homework!
Finances – you decide how much your monthly payment and down payment should be. Let’s face it, most mortgage lenders will qualify you for the maximum amount your budget will allow. This doesn’t mean that is the home price you should be searching for. Consider your lifestyle and your disposable income. Do you want to be “house poor”? Many people have found themselves in trouble after purchasing a home at their “qualified” amount, then realized they had to give up the recreations and personal spending they were used to.
Sometimes a larger mortgage pays off in the long run when we are in a strong market with good appreciations. This will allow your money to grow at a rapid rate. Let’s look at an example of a $200,000 home. With a down payment of 10% and an average appreciation of 6%, you’re gaining $12,000 a year which equals a 60% return on your cash invested. I would venture to say there are very few investments that would yield that return. Please refer back to www.aboveparhomes.com for a mortgage calculator to help you determine what is best for you. Be sure to factor all related expenses such as taxes, insurance, homeowner fees and any improvements you would like to do. The bottom line is that you should make a list of your monthly expenses, as well as project your financial commitments during the life of the mortgage. This will provide a realistic figure of what you can afford.
When you are shopping for a loan you should consult your REALTOR®, because many times they have resources in this area for you . There are two main sources for a mortgage. Direct lenders and mortgage brokers. Direct lenders handle all loans in house but typically have fewer programs to offer. Brokers charge a fee but offer many different options from many sources and often save you money overall.
Basic Mortgage Options
Although there are many loan types such as FHA, VA and conventional, generally within those groups there are generally basic options of either a fixed rate mortgage or an adjustable rate mortgage (ARM).
A fixed rate mortgage means that your interest rate does not change throughout the life of the loan. Your payment amount will fluctuate due to your homeowner’s insurance and taxes that are generally built into your mortgage payment, but your
principal and interest remain the same. Fixed rate mortgages allow you to plan your bills and budget each month and long term with stability. The downside is they generally are higher interest rates than ARM’s.
An ARM interest rate adjusts either higher or lower depending on economic trends, and is normally tied to the U.S. Treasury index. Normally, the interest rate starting out on an ARM is one quarter to two points lower than a fixed rate mortgage, but remember, this can change with the economy. If you are setting a strict budget for your monthly mortgage you may want to consider a fixed rate.
Additionally, remember the best rates and loan types are offered to people with the best credit. When you start to consider purchasing a home you should start to pay off as many credit cards and other bills that you have. One strong consideration for mortgage lenders is debt to income ratio (DTI).
Synopsis- There’s more to a mortgage than how much you qualify to borrow. To decide what kind of financing you should choose, think about your long term plans and financial goals as well.
Expect a hole in one from your REALTOR® at Above Par Homes.
Benefits of using us as your Above Par Homes REALTOR®
First and foremost, we will listen to your concerns and help you put together a list of what you want in a home and possibly more important, exactly what you don’t want. Help you understand financing options and if necessary recommend someone.
We scour the market searching for your desired home
Give you access through our website to MLS for you to search at your leisure. Send you potential properties through email that we believe may match your requirements. View homes with you. Do comparative market analysis on homes that are of interest.
Provide you with access to websites that will give you pertinent information about any neighborhoods you may be interested in.
Consult with you when it’s time to write the contract, make suggestions the offer and have your final approval before submitting to the Seller. Keep you informed every step of the way throughout the Offer and acceptance with access to Relay®, our transaction management system.
Synopsis – We are the professionals to lead you from your first thought of purchasing a home, through the closing and afterwards with any home-related services you may need.
Negotiating the Deal – When you find “The One”
The negotiation part of the deal is often the most difficult. Both the Seller and the Buyer need to feel as if this is a good deal for them. It’s important to have a good REALTOR® during this phase that not only has good negotiating skills but can be creative as well. Many times deals include asking for accomodations such as closing costs, HOA transfer fees, home warranty or possibly a fixture inside that wouldn’t normally be part of the deal.
Be sure you are not giving yourself away by oohing and aahing over a house in front of the Seller or their agent. Make your notes about your dislikes and likes about each property you view and share those with your REALTOR®. This comes in very handy not only for your Above Par Homes REALTOR® to show you appropriate homes in the future but also during the negotiation process.
It’s important to strike a balance of displaying that you are an interested, qualified buyer without appearing too eager. You’ll appear as a serious buyer – the kind Seller’s are looking for at the time you make the offer, particularly if you:
Have already sold your current home (if you have one) or that you’re not dependent on that sale to move forward
Provide a pre-approval or make a cash offer
Provide an attractive “earnest” deposit
Make an offer that still allows for some negotiating
Don’t insult the Seller’s by low-balling their asking price
These things will put you in a stronger negotiating position overall. If there are multiple offers, you will appear to be the most qualified which is sometimes more important than the highest offer. Additionally, if this really is “The One” you should be willing to make some compromises. Don’t sweat the small things and get in your way of purchasing. If you have small disagreements with the Seller, see if you can split the difference and still be happy on both sides.
Now you are ready for your next step
Applying for your Loan – After you have found and reached agreement on the home you want to purchase you will actually begin the loan process with the lender of your choice. If you didn’t supply these items during your pre-qualifying process be prepared to be asked for the following documentation:
Proof of Social Security number
Address/Residence for the past two years
Landlord contact information if you’ve been renting
Copies of your rental agreements for the past two years
Names, addresses, account numbers and balances of all checking and savings accounts.
Names, addresses, account numbers, balances and monthly payment of all open accounts including credit cards.
Addresses of any other Real Estate that you own and loan information on it.
Estimated value of all personal property
Money for a credit report and appraisal, generally this items are paid for up front
W2’s for the past two years
Full divorce decree (if applicable)
Signed Federal Tax returns for the past two years.
If you are self-employed you will also need:
Signed year-to-date profit and loss statement
Partnership tax returns for the last two years or Corporate tax returns for the last two years, which ever applies.
I know this sounds like a lot but it is part of the loan process and we feel that if you know this at the beginning and start pulling it together it won’t seem so at one time.
Property Appraisal – the process
Knowing what is involved in the appraisal process can greatly help in maximizing the appraised value and avoiding costly re-inspections. The process consists of many steps but here are the main steps for you to understand:
Research of the subject property including lot size, bedrooms, year built and square footage. The appraiser needs to locate a minimum of 3 similar properties that have sold and closed escrow within the last 6 months.
Field inspection, which consists of two parts: Interior inspection and exterior inspection of the subject property and also exterior inspection of the comparable properties. The information the appraiser gathers is then used to set an appraised value of the subject property.
Remember, an appraisal is a third party estimate of value of a piece of property at that particular point in time. This can either confirm your purchase price or throw roadblocks in the deal if it does not appraise as high as your offer. Most of the time lenders will not lend more than the appraised value.
Home Inspections – For your protection
Most likely your Above Par Homes REALTOR® will recommend that you hire a licensed home inspector. This is for your protection to know any underlying problems that you may not see and have not been disclosed by the Seller. Most contracts have an inspection period time frame where you can withdraw from the contract if the conditions are unsatisfactory to you. These inspections are usually very thorough with interior and exterior examinations. You should expect to receive a very detailed report from the inspector.
You should also get a Structural Pest Control Inspection. This is often called a termite report. Some types of financing require this and others do not. For the cost of this inspection it can save you hundreds if not thousands of dollars in repair costs if left untreated.
Commonly, the buyer pays for all inspections of the property. You may also feel as if it’s a good idea to get a Home Warranty on the property for any repairs during the first year. Typically, the deductible is $55-$100 for each visit but in the event something major goes out, it is usually covered. It is also typical for your agent to ask for the Seller to pay for this. Not always typical that the Seller actually will, but we believe you never get what you don’t ask for.
SPDS and CLUE
Your Above Par Homes REALTOR® should be obtaining the SPDS and Clue during this timeframe as well if not already done. The SPDS is the Seller’s Property Disclosure Statement which tells you everything they know about the property. We always like to provide this to the Home Inspector so they can look for any known issues. The CLUE is a letter obtained from the Seller’s Homeowners insurance giving the history of any claims against the property.
Annual Tax Statement
Annual tax statements are issued in the fall of the current year and billed for the calendar year. They may be paid in installments or all at once.
1st half due October 1 – Delinquent November 1
2nd half due March 1 – Delinquent May 1
The County Treasurer will not be held liable for payments made on the wrong property and will not accept payments made in advance of their due date.
To avoid problems: Check the property description on your tax statement. Provide your parcel number when making payments or inquiries to the Treasurer or Assessor office. Your parcel number is located within your Title documents.
Escrow – What is an escrow?
An agreement in which buyer and seller appoint an impartial third party to hold funds and/or documents. In a real estate transaction an escrow officer would hold the seller’s deed and the buyer’s funds.
Who pays the Escrow fees? – The costs are a matter of agreement between the two parties based on what is written in the contract, as is choosing the escrow company.
What does Escrow do for me? – Just to name a few
Order Title commitment
Examine Title commitment upon receipt.
Clear any clouds on title
Prepare buyer/seller instructions
Prepare commission instructions
Order HOA docs
Set appointments with both Buyer’s and Seller’s for closing
Accept final funds from Buyer
Send documents to the County Recorder’s office
Notify all parties once the deed is recorded so the property can be released to the new owner.
Finishing the Deal – Wait!!!!!
This could be the hard part. Now that you are through all of your inspections and your loan has been approved, it’s time to wait for the agreed upon closing day. Generally, three days before closing all loan documents should be to the escrow company for assembling and you will be receiving a phone call to schedule your signing. You should allow yourself 1-1 ½ hours for signing all of your documents if you are financing. If you’re lucky enough to have a cash deal, signing should take about 10 minutes.
Final Walk Through – A day or two before closing
Your Above Par Homes REALTOR® should be scheduling a final walk through of the property a day or two before close. You will do this together, usually with a checklist. This is the time to make sure that the property is relatively the same as when you put the offer in. Not to sound scary, but we have seen appliances switched, items missing that were agreed upon to stay, as well as damage that happened during a move. We believe this is a critical step and should always happen.
Your Above Par Homes REALTOR® will be calling you with the news that the deed has recorded once they hear from the escrow agent. You will then arrange a time to pick up your keys, garage door openers and any other ancillary items that go with the home.
You are now a homeowner and will soon discover what you need to buy and what you will need to know.
Don’t forget we at Above Par Homes have a very long list of trusted resources to help you with your new home. Please don’t hesitate to call us first when searching for a service provider. We have done our homework and feel very confident in the pool of contractor’s, handymen, organizers, and possibly even a list of babysitter’s in your new neighborhood. We strive to make this experience a hole in one for you and hope that you will refer us to any of your family and friends as a trusted, professional, reliable and knowledgeable team of experts.