Real Estate Advice

Buying Your First Home: Seven Tips For First-Time Home Buyers

 

Now that you've made the decision to purchase your first home, a hearty congratulations is in order!  Becoming a homeowner, especially for the first time, can stir up some feelings of anxiety and excitement.  With the knowledge that you gain through individual research and the help of your REALTOR®, you will soon begin to feel like a seasoned house hunter.

 

Tip # 1: Do Your Homework

 

Did you know that there are a number of incentives available to first-time home buyers?  Everything from a 3-5 percent down payment and interest rates as low as 5.75 percent are just a few of the ways that lenders help to make the dream of home ownership into a reality for many.  An FHA loan, for instance, is especially appealing to first-time home buyers.  The best way to find out what's available, in terms of down payment requirements and interest rates, is to do your homework by comparing offerings from various lenders.

 

Tip # 2: Save Money

 

Although many loans are geared toward offering lower down payments to first-time home buyers, it's important to save as much money as possible so that you will have enough to provide an earnest money deposit (if applicable), pay for closing costs and still have the funds to furnish and decorate your new home.

 

Tip # 3: Get Your Credit Profile In Order

 

When you apply for a loan, the lender will access a copy of your credit report and will use the information to determine your creditworthiness and/or interest rate.  This means that you will want to make sure that the information contained in your credit report is accurate and up-to-date.  You can do this by requesting a copy of your file from each of the three major credit reporting agencies - Experian, Equifax and TransUnion.

 

In addition to past credit history, lenders will also look at your current debt ratio in order to determine whether or not you can afford the home.  This means that you may want to consider paying down some of your existing credit card debt and avoid taking on any new debt before applying for a mortgage.

 

Tip # 4: Start Your Search

 

With the World Wide Web being what it is today, it's no surprise that many potential home buyers start their search online.  A Realtor's Web site is designed to not only list real estate, but also to educate a buyer as they move through the process of searching for a new home.  In addition, the internet offers a way for consumers to browse through color photos and virtual tours, both interior and exterior, along with information pertaining to the homes themselves.  The convenience of being able to find a home that you like without having to wait is just one of the many benefits to shopping for a house online.  When you are finally ready to meet with a REALTOR®, you will already have one or more prospects in mind.

 

Tip # 5: Have Patience

 

Perhaps you will find the perfect house this week, or maybe it will take a little longer.  Some buyers find exactly what they are looking for right away, while others have to do a little more searching to find their dream home.  As a first-time home buyer, it's a good idea to begin the process with an understanding that good things really do come to those who wait.  You may see a number of homes, take numerous photos and may even make an offer or two, but patience may very well be the key to finding your new home.

 

Tip # 6: Take Notes

 

If you see a lot of homes, it will be impossible to remember the features of each.  For this reason, you should consider taking a notebook and writing down each unique or defining aspect that you like or dislike about a particular house.  This information, along with any photos that you take, will help you greatly when it's time to make a choice.

 

Tip # 7: Don't Settle

 

A home is a big investment and it could, quite possibly, be the largest you will ever make.  For this reason, along with the fact that you will be living in the home every day, make sure that you get what you want.  There could be an instance where you need to make some type of compromise, but you may want to avoid choosing something just because it's within your price range or you feel as though it's your only option.  New houses are placed on the market every day and, as a buyer, the next one listed may just be your dream home.

Buying Verses Renting A Home

 

When it comes to a home, you have two options: buy or rent.  What is right for one person may not be right for another, which is why it's important to know which is the best option for your individual situation.

 

Why People Rent

 

There are a number of reasons why someone may either choose or be forced to rent, including sporadic or unpredictable income, a high debt-to-income ratio, a bankruptcy or foreclosure within the last six months, unpaid collection accounts or judgments, frequent relocating for employment or the inability to save enough money for a required down payment on the purchase of a home.

 

Maintenance Matters

 

As a homeowner, you will be responsible for any maintenance or repair issues that arise.  This is a big consideration when choosing whether to rent or buy.  When you rent, the property owner is responsible for repairs and it may not always be obvious that these issues can be very costly.

 

How To Know When It's Time To Buy

 

If you have steady income with a good employment history, can provide a down payment of at least 5-10 percent of the purchase price and are current with all debts, it may be time to consider buying a home instead of renting.  In some cases, the cost of rent may even exceed that of a typical mortgage payment.

 

When deciding to buy, job stability is a big factor.  If your job does not require frequent relocation and you plan to live in the home for at least 5-10 years, you may want to consider making the purchase.  If you need to relocate after that, you may have enough equity from the sale to use as a down payment on another home.

 

Home Buyer's Checklist

 

If you can answer yes to the following questions, you may be ready for home ownership.  Your REALTOR® can help you to find the perfect home based on your individual needs.

 

Have you been steadily employed for at least one year, but preferably two years?

 

Do you plan to live in the home long enough to build equity?

 

Can you provide a down payment and still have enough money left to pay for closing costs, utilities and home furnishings?

 

Are you current on all debts, including auto loans, credit cards, etc.?

 

In addition to any current debts that you may have, can you afford a monthly mortgage payment which will likely include property taxes and insurance?

 

Do you have the time to devote to shopping for a home and comparing interest rates from various lenders?

 

Have you checked your credit reports for inaccuracies and disputed anything that needs correction with each of the three major credit reporting agencies?

 

The decision to buy or rent is a very personal one that can only be determined after a careful evaluation of your situation. A REALTOR® can show you the perfect home and a lender can tell you whether or not you can afford it, but it's up to you to make the choice as to whether or not you are ready to make the move.

Buying A Home With Bad Credit

 

When it comes to buying a home, having bad credit is not the end of the world.  Your future doesn't have to be defined by your past.  Whether you have suffered from a bankruptcy, foreclosure or some type of financial hardship that resulted in late or missed payments, there are lenders who specialize in financing for those with less-than-perfect credit.  You will likely have to produce a larger down payment and/or pay higher interest rates than someone who has good credit, but the important thing to know is that buying a home is an option for you.

 

Bankruptcy & Foreclosure

 

If either a bankruptcy or foreclosure is on your credit report, it could take some time before you can qualify for a good interest rate on a mortgage.  FHA loans, which are especially desirable for those with past credit problems and first-time home buyers, are backed by the government and offer a low down payment and interest rate option for those who qualify.  Although the notation remains for up to 10 years, individuals with a bankruptcy or foreclosure on their credit report may qualify for an FHA loan after two years.  Some mortgage lenders may approve a loan sooner, but the interest rates will be higher and the required down payment may be as much as 35 percent of the purchase price of the home.

 

Cleaning Up Your Credit

 

Even if you have bad credit, it's important to check your credit report from each of the three major credit reporting agencies - TransUnion, Equifax and Experian - before applying for a loan.  If anything is inaccurate, file a dispute with the reporting agency and request a correction.  You can request a free copy of your credit report every 12 months.

 

In addition to correcting any inaccuracies on your credit report, it's important that you know what can help or hurt your chances of obtaining a loan.  You can start improving your credit by avoiding the temptation to apply for new credit right before submitting a mortgage application.  Multiple inquiries will cause your FICO score to drop, and lenders will rely on this information when deciding whether or not to issue your loan and how to calculate your interest rates.  With past credit problems, most lenders will want to see that you have rebuilt your credit history with 1-3 major credit cards and timely payments over a two-year period.

 

Money Matters

 

When it comes to obtaining a home loan, a healthy bottom line will help the lender to see you as being creditworthy.  It's important that you have sufficient income, along with the ability to prove steady employment for at least one year (longer is better) preceding your loan application.  Most lenders will request a copy of your tax returns for the two most recent years, along with current pay stubs.  If you have money for a down payment, this will also work in your favor.

 

Creative Financing

 

In some cases, a conventional mortgage loan may not be available no matter how hard you try.  Owner financing is one way that individuals, who may not otherwise qualify for a traditional mortgage loan, can purchase a home.  This type of financing is offered by the owner and may include interest rates comparable to other loans, flexible down payment options and no credit check.  Your REALTOR® can assist you in finding homes that offer alternative financing options.

Buying A Home That Can Grow With Your Family

 

If you are a first time homeowner, or are purchasing a home after a major life change such as marriage or having children, what should you consider to be sure your new home can grow with your changing family?  The time and effort that go into purchasing and decorating a new home, not to mention finding it in the first place, means that you'll want to ensure that your home will be right for you and your family for years to come.  So what should you look for in your new home so that it will give you enjoyment and be functional both now and in the future?

 

Size

 

Though a cute two-bedroom home may be right for a newlywed couple, this type of space will likely soon be outgrown if there are any children in your future or if you and your spouse like to entertain.  You will also want to consider the number of bathrooms and the facilities in them.  Having only one toilet or shower can certainly put stress on a growing family.

 

Features

 

Special features of a home, such as a finished basement, central air, and a large yard can make your home a more functional and enjoyable space, especially if you have or are considering starting a family in the near future.  You may also want to consider the age of the home you purchase and its features or appliances, as this may lead to future costs that may put stress on your financial situation at a time when one spouse may be at home caring for the children.

 

Location

 

Location is also an important consideration when choosing a home that can grow with your family.  Choosing a safe neighborhood is always an important point when selecting a family home, but you will also want to consider the proximity of good schools, community centers, and shopping.  Also, facilities such as parks and libraries can make a neighborhood truly a great place for families.  You may also want to consider the demographics of the area in which you are purchasing in order to be sure it is a match with your values.

 

As the old adage goes, home is where the heart is, and choosing a family home that is right for your family can really make all the difference in having a happy, fulfilling, and safe family life.