For the First Time Home Buyer

Searching for your first home begins with knowing how much you want to spend and what kind of neighborhood you want to live in, but it doesn’t stop there. There are several other factors that need to be taken into consideration before you invest in what could end up being your largest asset.  

First Things First:

·     Take good look at your existing everyday budget. Your current financial state needs to be taken into careful consideration so you know how much you can afford in mortgage payments.

·     Talk to family and friends when choosing a lawyer, inspector, or agent. They might have a good recommendation for those who will be helping you along the home buying process.

·     Consider your way of living and how it might have an impact on the type of home you need and what sort of community it should be located in.

·     Research the existing home prices located in the neighborhoods you have in mind.

Purchasing Your First Home

Becoming a homeowner is a big part of the American Dream, but before you start searching for that perfect house there are several factors that need to be considered. For example, you ought to figure out what your needs are and if owning a home will fulfill those needs. Can you see yourself doing yard work on a Saturday morning, or leaving the city life for more of a beach setting? Look at home buying as investing in your lifestyle first and as an investment second.

Purchasing a house for the first time is still a good investment, even if the home prices aren’t increasing the rate seen in the past recent years. Having a mortgage makes you save and after 15-30 years you will have gained a considerable asset that you can convert into cash. The money you make off your asset can then be used for such things as a college or retirement fund. Also, becoming a homeowner has its tax benefits.

The real estate market tends to fluctuate often. If you aren’t all set to make the commitment to live in the same place for a considerable amount of time, then you might want to hold off on purchasing a home. On the other hand, if making this commitment is where you are at in your life, then figuring out how much you’re able to spend and the neighborhood you want to live in are decisions that need to be made.

Determining a Mortgage Payment You Can Afford

Today there are several mortgages that a being resold. The Federal National Mortgage Association, more commonly known as Fannie Mae, is an organization that’s government sponsored and buys mortgages from lenders, to turns around and sell them to investors. The mortgages that meet the standards of Fannie Mea can carry along with them lower interest rates and smaller down payments. The bank home loan borrower has to have two ratio requirements that meet industry standards in order to qualify.

The “housing expense ratio” compares basic monthly housing costs (i.e. mortgage payment, insurance, property taxes) to the buyer's gross (before taxes and other deductions) monthly income. “Income” includes any type of steady cash flow (i.e. salary, self-employment income, pensions, child support, alimony payments).  To qualify for a conventional loan, your monthly housing cost should not surpass 28% of your monthly gross income.

The “total obligations to income ratio” is the percentage of all income essential to facilitate your total monthly expenses. Any monthly costs on things such as student loans, installment loans, or credit card balances that are older than 10 months are added to your basic housing expenses which are then divided by your gross income. Your total once-a-month debt payments, including basic housing costs, shouldn’t go any further than 36%.

Typically, a home buyer will make arrangements for financing prior to house shopping, and will get pre-qualified by a lender for a certain amount. Getting “pre-qualified” keeps your focus on homes you can afford. It furthermore marks you as a more attractive buyer. Having this on your side can sometimes help you negotiate a lower purchase price. There isn’t anything more discouraging for buyers and sellers, than a transaction that falls because of a deficiency in financing.

Additionally to meeting the requirements for a mortgage, you will most likely need a down payment. The 28-36% debt ratios assume that there is a 10% down payment. When it comes down to it, down payment requirements differ from more than 20 percent to as low as 0 percent. A down payment greater than 20% usually buys a better rate. Dropping the down payment escalates influence but it also increases monthly payments.

The Unexpected Expenses of Buying a Home

 Home buyers are typically shocked to learn that merely a down payment isn’t the only cash requirement. Things like a home inspection can run you $200 or more. Closing costs can include everything from lawyer fees, title and escrow costs, loan origination fees, an appraisal and home owner’s insurance. In addition to these costs there are counties that even charge a transfer tax. All in all, closing costs will most likely add up to about 3-8% of your purchase price.

Constant Expenses

A mortgage payment is not the only thing that must be paid on a regular basis, other expenses that go along with becoming a homeowner are things like property taxes, insurance, repairs, utilities, landscaping and that’s just to name a few. It’s important to have an awareness of these costs beforehand, that way you can be prepared and know how much you can spend on such matters.

If you are looking into condos, they might not have some of the same expenses as owning a home, but they will have homeowner’s association fees. Buying an older home will cost you less up front, but there will most likely be repairs that will need to be made. Before buying an older home make sure that these repairs won’t cost you more than if you would have just purchased a newer home to begin with. It’s a good idea to see what the expenses of the previous owners were so that you have a good idea of what to expect.

Choosing the Right Neighborhood

When you start looking at homes, start with neighborhoods first. School districts, parks and other services have a big role in making a neighborhood desirable place to live. Even if you don’t have kids now, you might want to in the future or who you end up selling to might. Look at everything from taxes, town services, the crimes rate, and public transportation.

When prices in a neighborhood begin to increase that’s the time to buy in that particular area. As the price of the nicer or newer homes goes up, so does the value of the older homes in the area. If you happen to find a more affordable home in a nice neighborhood, make sure to keep in might what it might cost if the home is in need of repairs.

Finding the Right Broker for You

First time home buyers should try to work with a broker. Brokers have good knowledge of the market and will offer all the information you will need to know when purchasing your first home. Always ask lots of questions. One thing to keep in mind when working with a broker it that mostly they are working for the seller. Their main commitment is to the seller in the end, not you. An alternate to working with a broker is the “buyer’s-broker.” A “Buyer’s Broker” does work for you and in the end is paid by you. A “Seller’s Broker” are funded by the seller.

Be sure that whoever you choose to work with has the right to use the Multiple Listing Service, or MLS. The MLS lists all properties that are up for sale in all areas. The average commission to a broker or agent runs between 5-7% and is dived up between the broker listing the house and the broker that actually sells the home. Don’t be alarmed if a broker tries to sell you on one of their own listings. If they end up selling you one of their won listings then they don’t have to split the commission with anyone else.

The Cost of Purchasing a Home

 

Once you’ve decided on what you can afford and the neighborhood you want to live in, you can begin to look at properties individually. Much of what determines the value of a home is what it’s surrounded by, try to always keep this in mind. On average, a person will spend 7 years in the same house so be sure to take into consideration what might affect you in the future.

It’s likely that one day you might want to sell this home so the more research you do now, the better. A good decision today will benefit you later down the road.

In Conclusion:

·     Purchasing a house can mean constructing momentous value over the years.

·     Deliberate cautiously about how much you can manage to pay for in a mortgage and contemplate borrowing rules like those implicated by Fannie Mae.

·     Pre-qualifying with your lender to decide how much house you can afford.

·     Cash in hand will be needed for the down payment and closing costs. In general, the more you put down upfront, the lower your interest rate and monthly mortgage payment will be.

·     Additionally to your mortgage payments, you will also need to remember that there are other costs owning your own home.

·     Take into consideration schools, taxes, services, crime rates, and public transportation when deciding on a community.

• Brokers typically represent the seller, but they can be good sources for acquiring information needed when buying your first home. A broker that is a member of the MLS will be able to show you a more extensive assortment of homes to select from.
• Think of what the resale value of your home might be before purchasing it.