First time home buyers are told many things. Parents exclaim “Save your money!” while friends say “Location, location, location!” Reasonable advice, for sure, but there are other elements of home buying that many first time home buyers aren’t told. Below are some of these elements that are often overlooked but are useful to know:
- You don’t usually get the advertised mortgage rates: While you may see ads regaling “Lowest rates!” and “No money down!”, the truth is twofold: mortgage rates vary greatly, and there are many types of loans out there. To find the best loan for you and the rate you can get you need to complete a mortgage application, including a credit inquiry, and income and asset verification. While you can use an online mortgage calculator to estimate a payment, the results can be deceptive if you don’t factor in other aspects such as taxes, insurance, PMI, condo fees, and so on.
- It’s the monthly debt that counts: You have lots of monthly payments – car loan, credit card bills, or maybe a student loan. However, lenders aren’t really looking at the total amount you owe, but rather the amount you are supposed to pay each month. So, before you start paying off debt to qualify for a mortgage, speak with a mortgage professional. Nearly every element of your financial history will be scrutinized, and your debts will be considered when determining how much you may qualify for. Even in this market, and despite what you have heard on the news, many times borrowers can be “qualified” for a mortgage well above their comfort level. To find your level, you need to consider what your comfortable total monthly payment might be, including the principal, interest, taxes, insurance, mortgage insurance, and other fees. From there, a mortgage professional can help determine the mortgage amount and purchase price you may qualify for while keeping you in your comfort range.
- Your choice of agent makes all the difference: First time home buyers may get many recommendations about which agent to use, but don’t just sign up with the first agent you find. Your agent’s connections, experience, and market knowledge will be key and can mean the difference between an offer that gets accepted and one that does not. Be sure to work with a qualified buyer’s agent; after learning about what you want and need, a trusted mortgage professional can help by recommending an agent that best meets those needs.
- Remodeling costs more than you think: You’ve found a fixer-upper and are excited to renovate it. But before writing that offer, first time home buyers need to have calculated the true costs of that renovation. In general, budget at least 20% more than your estimate in both money and time. Also remember that some items can be fixed later while others need to be addressed before closing. For instance, you can wait to replace orange shag carpets with hardwood. But if the roof leaks, you won’t be able to get a mortgage lender to close on the home using a typical loan. Either that roof must be repaired before closing or you will need to get a rehab loan to address both the purchase and repair of the home. Happily, the rehab loan can also be used to replace that orange shag carpet.
- The lender’s appraiser will determine the market value of the property: Getting a loan requires more than simply having great credit and a down payment. First time home buyers have to pass the lender’s approval process which requires verifying your credit, income, and assets, plus appraising the property for value and safety issues. The value is based on recent sales of similar homes in the area, adjusting for differences in size, bedrooms, baths, location, age, condition, and more. Your loan will be based on the lesser of the appraised value and the purchase price.
- Even with a home inspection, there can still be problems: Obtaining a home inspection is important – you need to know if the home is structurally sound. But home ownership involves continuing expenses — and problems can pop up even on day one of ownership. Therefore, make sure you have funds set aside for the unexpected.
- You can minimize the stress of buying your first home: Great advice about buying a home is to relax — expect the unexpected! Experienced home buyers understand the cost of emotional involvement, and when you understand this, you will be better equipped to roll with the punches – and that means making better, financially sound decisions. Additionally, have a team of experts – including your mortgage loan officer, real estate agent, home inspector, and real estate attorney – that can help guide you through the hoops of buying your first home and ensure that the home you purchase is the right one – price and all – for you.
For more information about the home buying process, download our ultimate e-book guide to home buying. Not only will it take some of the fear out of home buying, but it will you give you the knowledge needed to make the right decisions.