First Time Homebuyers

There are many advantages to buying instead of renting. Instead of throwing away money on rent every month and being subject to yearly rent hikes, you are gaining equity in your home. Over time property values tend to increase and home ownership can be a great investment in your future. There are additional costs with home ownership and you need to be prepared for property taxes, insurance, and maintenance costs.

How Much House Can You afford?
To get started you need to calculate your Debt-to-Income Ratio also referred to as DTI. The front end ratio is your mortgage payment (PITI - principle, interest, taxes, insurance) plus HOA fees divided by your gross monthly income (pre-tax). The back end ratio is the front end debt plus all other debt (auto loans, student loans, credit cards, etc.) that you pay each month divided by your gross monthly income. Ideally your front end ratio should be no more than 28% and your back end ratio no more than 36%. There are loans that have higher limits, you will need to get with a lender to determine what you can qualify for. Just because you can get approved for a higher mortgage payment, does not mean it is affordable to you. DTI does not account for all of your monthly expenses, you need to decide what you can afford and what you are comfortable paying each month. Use our Mortgage Calculator to calculate your mortgage payment including taxes and insurance.

Down Payment
Did you know you do not need to have 20% down to buy a house? You may qualify for a loan with 0% down or as little as 3.5% down. Eligibility and credit will determine what loan products you can qualify for. Speak with a lender to learn more. You can also accept gift money to cover your down payment, again check with a lender to make sure it’s documented properly. Need help finding a lender? Contact us today and we can put you in touch with one.

Get Pre-approved
The next step is to start talking to lenders. You should get quotes on interest rates and loan products from at least a couple of lenders. You have a 45 day window to shop mortgage lenders without hurting your credit for multiple applications. How do you find a lender with so many options out there? Ask a friend who recently purchased if they would recommend their lender, read reviews, or ask your Realtor. In a seller’s market it is essential to having a pre-approval to submit with an offer. If you want to be in the best position to submit an offer you need to get a pre-approval not a pre-qualification. A pre-approval is when the lender has pre-approved you to qualify for a specific loan amount by your credit and verifying your income, debt, and any assets you may have. A pre-qualification is typically a quick determination of what you can qualify for based on what you’ve written on the application. It’s a good starting place but the actuality of what you’re approved for can be different. A pre-approval typically lasts for 90 days, after that the lender will likely run another credit check.

Starting Your Home Search
Consider how long you plan to live in your home, is this a starter home or do you have long term plans to stay? What kind of home works best for you? Is the privacy of a single family home more appealing than less maintenance with a condo? Consider other factors like school ratings, crime rates, proximity to work and things you like to do in your free time. Make a list of what features you are looking for in a home. Decide what you can’t live without and what you are flexible on. Drive around areas you’re interested in and visit open houses. After you’ve started viewing homes in person, you may decide to revisit your list. It can be helpful to look at homes just outside of your desired criteria “just to see" what’s out there. You may be surprised to find a home that works for you.

Work With a Realtor
Working with a buyer’s agent to purchase your first home is so important. You need your own representation and someone that has your interests at heart. Your Realtor will guide you through the entire process, be your voice and work for you. Working with a Realtor can provide you with up to date market information comparing current and past sales. This is helpful when deciding on how much to offer or seeing the sales trends in the neighborhood over time. Your Realtor can also set up automatic searches within your criteria straight from the MLS to your email. This means you can be notified as soon as a property hits the market so you never miss an opportunity to see a listing.

Putting in an Offer
You’ve found the house you want to buy, now what? Your Realtor can provide you with a comparative market analysis (CMA) to help you decide on a price. Your Realtor will use their expertise and experience to strategize submitting the best offer for you. It is ultimately your decision on what to offer and what to negotiate with the seller. Your agent will prepare the offer and all pertinent addenda for you to sign. Once the contract is signed by the seller, you should be prepared to pay both the Earnest Money and Option Fee immediately. These items have to be delivered and received within a specific time frame. Earnest money is payable to the title company and is essentially a deposit to show good faith in purchasing the home. If you are in default of the contract, the seller can accept the earnest money as a remedy. If everything goes well, it will be applied to your down payment and closing costs. Earnest money is typically 1% of the purchase price. The option fee is payable to the seller and buys you the right to terminate the contract for any reason within a specified number of days. Option fees can range from $50 to a couple hundred and are typically 7-10 days, but it’s all negotiable. Time is of the essence and having a Realtor to keep track of the deadlines and possible ways to terminate is beneficial to the buyer. Another item to consider at this time is a Home Warranty. Different home warranty companies offer different coverage, do some research and decide if it’s right for you. This is something you can negotiate to have a seller pay for. It is also a good idea to ask your lender and your agent to estimate closing costs for you.

What Happens Next?
After your offer is accepted you will want to have the house inspected during the option period. This is your chance to negotiate any issues that may have come up during the inspection. If you’ve changed your mind, you can choose to terminate and get your earnest money back as long as it’s in the option period. The lender will be contacting you for various items during the loan approval process. Do not make any large purchases or finance anything during this time as it can affect your credit and your final loan approval. The property will have an appraisal done by the lender to ensure the loan does not exceed the value in case of buyer default. You will also be responsible for choosing a homeowners insurance provider. Always get multiple quotes and try to bundle your auto and home insurance to save money. The time between an offer acceptance and closing is roughly 30 days but can vary.

What to Expect at Closing
The day of or the day before closing you will want to do a final walk through of the property with your agent. You will need to set up a wire transfer of your down payment and closing costs to the title company. NEVER trust an email with wiring instructions, ALWAYS call and verify directly with the title company. Wiring fraud is on the rise and you need to be cautious. Contact your Realtor if you need to verify contact info for the title company. Keep in mind that closing can be pushed back for a variety of reasons, never schedule movers on the day of closing!