Buying a home for the first-time (really any time) is a major decision. Saving enough cash for a first home purchase, finding the right real estate agent, finding the right mortgage, and many more issues (like moving) may seem to be overwhelming. The tips below offer some advice on first time real estate purchases that, hopefully, will make your first time home buying experience happy.
Often, the biggest hurdle in the first-time buyer's purchase is cash available for the down payment and buyer's closing costs. But even this obstacle is not insurmountable. If you are a veteran, you may be able to obtain 100% financing through a VA loan. And many lenders offer 95% financing. If your income enables you to qualify for the necessary mortgage loan, you may be able to negotiate a contract in which the seller pays your purchase closing costs and adjusts the price upward so that you, in effect, finance your closing costs. But the loan appraisal will still need to support this higher value in order for the loan to close.
When shopping for a mortgage, look at the overall cost, not just the interest rate. Generally speaking, the higher the rate, the lower the number of points charged. Make sure you understand any hidden costs or special early payment penalties which could create problems for you. Look at different mortgage products, such as shorter-term fixed-rate loans or adjustable rate loans, but be sure you understand what your "worst case scenario" is if interest rates rise. Also, in many cases, a mortgage payment inclusive of property taxes and insurance but offset by tax savings generated by mortgage interest deductions (which constitute most of the payment in the early years of a mortgage) may be the same or only slightly more than monthly rent, but you will be building equity with each payment.
A good place to start the entire process is to visit a local lender to "pre-qualify" and establish your maximum loan amount. (A professional real estate agent can help you determine your affordability level, too, if you don't mind sharing income and debt information). This loan maximum, coupled with your available cash, will determine the price range in which you should look. You can begin shopping by researching Selecting a Community you want and need, remembering that "location-location-location" can be as important as the home itself.
As a first-time home buyer, professional real estate assistance can be crucial, and you should insist that the real estate agent work with you as a "buyer's agent" in order to be your advocate in the transaction. In most cases, this real estate agent is still paid out of the seller's commission paid at closing, so you will not pay extra to be represented by a competent real estate agent
A competent real estate agent can help you evaluate the pros and cons of purchasing a single family home, condominium, or townhouse, and what the various types of ownership mean to you. Should you buy a resale home or new construction, and what kinds of inspections or warranties should you seek in each situation? When making an offer, how much below listing price can you offer, and how does the price compare to similar homes on the market? Are you negotiating terms and other costs (home warranty, for example) as well as price? What do you do if inspections uncover needed repairs? Are there any factors related to the house or neighborhood which could create resale problems? What closing costs are considered typical? In what is usually an emotional decision, you need the counsel of a reputable, knowledgeable real estate professional who can help you buy wisely.
Once you have settled on a community and seen several homes, you will make an offer on a home you like. If you and the seller, with the negotiating help of your real estate agent, come to terms and you execute a sales contract, you will then finalize your mortgage. The mortgage company will require a home inspection and a title search. You may have to coordinate your closing date based on when the seller can purchase another home and vacate.
There are other considerations such as home warranty, private mortgage insurance (PMI) on loans over 80% (also called "mortgage insurance premium", or MIP), title insurance and repair agreements with the seller. The real estate agent will guide you through these issues and pave the way for a smooth, on-time closing. And if faced with an unfamiliar term, you can consult our online real estate dictionary.
Many first-time home buyers don't realize what they are getting themselves into when they consider owning a home: home inspections, closing costs, buyer's brokers, appraisals, mortgage approval, etc. The U.S. Dept. of Housing and Urban Development includes a list of housing counseling agencies, which offer first time home buyer programs. These programs are designed to help first time home buyers weigh the benefits of renting vs. buying. The programs teach first time home buyers about the different mortgage programs that are available, the value of a home inspection, and what to expect at closing, including calculating your closing costs.
Five key HUD recommendations: a) know your rights as a buyer; b) find out how much mortgage you can afford; c) create a house wish list; d) find a real estate broker; and e) make an offer contingent on a home inspection.
Kiplinger's Buying & Selling A Home is a great resource for the first time home buyer. The home buying book is edited by the staff of Kiplinger's Personal Finance Magazine and contains many tips and resources to guide first time home buyers through each step of the home buying process: choosing an agent, locating listings, making an offer, getting a home inspection, and what closing costs you should anticipate. The book is available at both local and online book stores.
100 Questions Every First-Time Home Buyer Should Ask: With Answers from Top Brokers from Around the Country by Ilyce R. Glick, is another great resource that's also available locally and online.