Sometimes it’s simply a small notion that someone at work mentioned. A coworker just bought a first home and they just keep talking about it. Or maybe you start noticing For Sale signs around that were there, but you never noticed them. Perhaps your real estate agent friend keeps telling you it’s time to buy and stop renting. Whatever the motive, buying a first home is a pretty big step. All homeowners remember buying their very first home. Pretty much every detail. They remember where they close and can remember what their settlement agent looked like. They certainly remember the down payment and closing costs and getting the keys to the home handed over to them. It’s pretty exciting. If these thoughts are swirling in your head, ask these questions to see if they can push you across the goal line.
How much money do I need?
You’ll need money for a down payment, closing costs and cash reserves. There are a couple of loans that don’t require a down payment, VA and USDA loans, but those are either reserved for certain buyers or the property is located in a rural area. Otherwise, you’ll need a down payment. There are some conventional loans that ask for a down payment of as low as 3.0 percent and FHA loans only need a 3.5 percent down payment. All loans need closing costs to pay for various services from third party vendors. From an appraisal to title insurance, there are fees. Your loan officer can provide a loan cost estimate based upon request. Cash reserves are identified as the number of months’ worth of house payments that are left over in the bank after the loan has closed.
How much can I borrow?
That’s a combination of current market rates, the term of your loan, your gross monthly income and current monthly credit obligations. A good estimate can be had by taking about one-third of your gross monthly income. That gives your lender an idea of what you can qualify for as it relates to monthly payment. Then, using current rates, apply that payment to calculate a qualifying loan amount. This is an estimate, but your loan officer will figure this for you.
Am I ready for household maintenance costs?
This is something that many first time buyers don’t take into consideration. When you rent and the hot water heater goes out, it’s a call to the property manager or landlord who comes and fixes it for you. You don’t have to pay for it, it’s part of your lease agreement. The hot water heater belongs to the owner of the property who is responsible for keeping it in shape. When you own a home and the hot water heater goes out, it’s you that has to come up with the funds to fix it. Your agent will also recommend that you have the property inspected by a licensed home inspector. You’ll get a report on the overall condition of your property as well as the condition of appliances.
Where do I want to live?
This is largely based upon how much you can qualify for. When your loan officer provides you with a preapproval telling you how much you can finance, your agent then locates different areas of town that fit into your budget. Professional agents know the demographics and home values in all areas of town, some you may not even know about. Most buyers want to buy in an area that is close to work with an easy commute. Still others like the urban lifestyle and live in a high-rise condo downtown.
Do I really need an agent?
Yes, you really need an agent. Don’t try to find a home and negotiate a price on your own. You’ll be dealing with another agent who excels at negotiations. You need someone with the same skills on your side. And one other thing, you won’t need to pay for your agent’s services, the sellers take care of that.