Hi there my lovelies! Hope you all are doing well and staying safe. Have you made a major decision in your life only to regret it later? You specially don’t want to do it when it comes to buying house for the first time. Trust me, I have been there. Home buying process for first time home buyers is already intimidating, full of uncertainty, painful, full of anxiety, and stress. Hence today, I will share with you five and more tips to make your first time home buying process much easier.
- Know how much you can afford:
This is a crucial step because going into the home buying process without knowing how much you can actually afford can lead to financial hardship down the road or even foreclosure. I have seen this happen. You don’t want to buy house for a price, which is higher than you can actually afford. You should be able to pay you monthly mortgage and have at least 3 to 6 months of payment reserved. The general rule of thumb is the monthly mortgage plus tax and insurance should not exceed 30% of your gross monthly income. The lower amount would be even better. This way you will have some buffer room. Moreover, always anticipate additional expenses outside your monthly mortgage payment. As a home owner, you are responsible for all repair cost. Most homes have home owner association (HOA) monthly fee, so do count that as part of your monthly mortgage payment plus taxes and insurance.
- Get Pre-qualified for home loan:
Many sellers will not even let you make any offers on your home without been prequalified for home loan. This is actually a great way to have your ducks in row. You will know how much you can afford. Do shop around. It’s sometimes hard to get loans from big banks. Check out your local small banks and credit unions. Lending Tree is a great site where you can shop around for your loans.
- Get your credits in order:
Make sure that your credit is in order. I will add another post on how to boost your credit. You can check your credit for free at annualcreditreport.com. You should check your credit report every year to make sure your account in good shape and there are no discrepancies. Additionally, you should also know your credit score. Credit Karma is a great site where you can get your credit score for free. The higher your credit score, the better the interest rate you will qualify for. Not many lenders would not even consider your loan application below 620 score.
- Save for your down payment and closing cost:
The amount of down payment will depend on the type of loan you are getting. There are various type of loans available:
i. FHA Loan: FHA loan is issued by an FHA-approved lender and insured by the Federal Housing Administration (FHA). Designed for low-to-moderate-income borrowers, FHA loans require a lower minimum down payments and credit scores than many conventional loans. With FHA loans, your down payment can be as low as 3.5% of the purchase price. You’ll need a credit score of at least 580 to qualify. If your credit score falls between 500 and 579, you can still get an FHA loan provided you can make a 10% down payment. With FHA loans, your down payment can come from savings, a financial gift from a family member, or a grant for down-payment assistance. Majority of FHA loans require you to may a premium mortgage insurance (PMI) each month. This added expense can drive up the cost of your monthly mortgage payments and, overall, makes your loan more expensive. However, it’s almost unavoidable if you don’t have a 20% or more down payment saved up.
ii. Conventional Loan: A conventional mortgage or conventional loan is any type of home buyer’s loan that is not offered or secured by a government entity. Instead, conventional mortgages are available through private lenders, such as banks, credit unions, and mortgage companies. Conventional mortgages typically have a fixed rate of interest, which means that the interest rate does not change throughout the life of the loan. Conventional mortgages or loans or not guaranteed by the federal government and as a result, typically have stricter lending requirements by banks and creditors. No property is ever 100% financed. In checking your assets and liabilities, a lender is looking to see not only if you can afford your monthly mortgage payments, which usually shouldn’t exceed 28% of your gross income. A credit score of at least 680 and, preferably, well over 700 can be required for approval. Also, the higher the score, the lower the interest rate on the loan, with the best terms being reserved for those over 740. Typically, adown payment of at least 20% of the home’s purchase price readily available. Lenders can and do accept less, but if they do, they often require that borrowers take out private mortgage insurance and pay its premiums monthly until they achieve at least 20% equity in the house.
iii. VA Loan: A VA loan is a $0-down mortgage option issued by private lenders and partially backed, or guaranteed, by the Department of Veterans Affairs (VA). Eligible borrowers can use a VA loan to purchase a property as their primary residence or refinance an existing mortgage. Service members with a history of bankruptcy or foreclosure can secure a VA loan. Even borrowers who have had a VA loan foreclosed on can still utilize their VA loan benefit. The VA’s guaranty eliminates the need for any mortgage insurance or mortgage insurance premium, helping borrowers save even more money each month. However, there is the VA Funding Fee. This fee helps the VA keep the program going and is required on both purchase and refinance loans. It can be rolled into the loan amount and waived entirely for those with service-connected disabilities. The VA funding fee is 2.3% of the amount borrowed on a VA home loan. The fee increases to 3.6% for borrowers who have already used the VA loan program in the past. However, the funding fee can be reduced by putting at least 5% down at the time of closing.
iv. USDA Loans: USDA loans help moderate- to low-income borrowers buy homes in rural areas. You must purchase a home in a USDA-eligible area and meet certain income limits to qualify. Some USDA loans do not require a down payment for eligible borrowers with low incomes. Credit requirements are more relaxed in USDA loans, and you don’t need a large down payment. Nonetheless, you should expect to pay mandatory mortgage insurance premiums that cannot be canceled on some loans.
Closing costs, also known as settlement costs, are the fees you pay when obtaining your loan. Closing costs are typically about 3-5% of your loan amount and are usually paid at closing. Typically the buyer pays closing costs, though sometimes negotiations between the buyer and the seller can lead to the seller paying some of the closing costs. However, don’t count on it.
5. Get a good real estate agent:
Having a knowledgeable real estate agent if crucial a good home buying experience. You can get an agent specializing in buying and selling, or someone who specializes just in buying homes. I would rather go with the later one since this way you will assured that the agent is not trying to get you to buy one of his/her listing. Ask your family and friends for recommendation and also do your homework. You would want agent who has sold many homes than some who sells 1 or 2 homes a month. My agent was horrible who did not want to do much research. He put a lot of pressure on us to buy soon. Don’t go with anyone, who is only interested in their commission and does not understand what you are looking for in a house.
6. Study the neighborhood:
This is very important. If you heard the phrase ‘location, location, location’, it is very true. Do your homework on the neighborhood you are interested in, it’s school district, walkability, and convenience to groceries and other stores. If you a city dweller and am looking to buy in suburb, make sure you know what you are getting into. I grew up in the city, never owned a car, and was used to walking everywhere, relying on public transportation and everything in walking distance. When I bought my first home, I went from a neighborhood with walk score of 98 to one with a walk score of 22, which meant I had to invest on a car after buying my house. It added additional monthly cost (both car payment and car insurance payment) to my monthly expense. Additionally, you don’t want to buy a house where there are mostly rental properties. Your house price will not rise much and it will be harder to resell.
7. Don’t invest on anything big:
Before buying your house, hold off on buying any big purchase, such as large furniture, car, because this may effect your credit score. Making any large purchases will increase your loan and will put a dent on your credit. Do take that info account.
8. Get your home and termite inspection done:
This is very important to get this done, because as a first time home buyer would not want to move into your first home and find one issues after another. When we had our home and termite inspection done, there were several issues, including broken washing machine and garbage disposal, mold and termite issue. That should have been a red flag for us. However, our agent negotiated with the seller to fix all those issues and assured us that all the issues were taken care of. However, down the road we found that there were issues with the dryer, and the seller patched up some termite damages on the stairs without fixing the issue. We had to end up replacing the entire stairs, which was expensive. You want to make sure that the major appliances are in great shape. This again when a good real estate agent can be of great help. Our agent told showed us that all appliances where brand new and we should be good for a long time. However, after buying the house we found out that the dishwasher was not connected to the waterline properly when meant that the dishes never dried. I should not rely completely on your agent but at the same time you want someone who is empathetic and understanding.
9. Get home warranty:
Make sure that you have home warranty before buying your house. One of the great thing is most sellers do offer some sort of home warranty. Our real estate agency paid of our first year home warranty. That was a life saver, because after we moved into the house during summer, our hvac and water heater stopped working. That was a big hassle because it was hot and painful to be in without working a/c. Thanks to the home warranty we got the issues fixed and just paid the deductible. The warranty was specially helpful when my hvac system died on me. My warranty helped to replace it for me. Now, home warranty is regular part of home payment.
My dear lovelies! I wish someone told me these tips before I bought my house. Home buying can be chaotic, painful, hassling, nerve-racking, and even hectic. However, the above tips will make the first-time home buying process much easier.
I hope you enjoyed this post as much as I enjoyed writing it. Have you recently bought you first home? I would love to hear about your experience and feedback. Please share your first time home buying experience and what tips would you provide to first time home buyers?
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