First time home buyers risk the highest percentage of their assets in the typical purchase. Yet, they know the least about the whole process. If this is you, read on.
Buying your first home can seem daunting at first. After all, you are most likely putting down almost all your savings as down payment and also trying to obtain a very large sized loan to boot. I know that being in serious debt can seem frustrating, but home ownership can have its rewards too. The stability, the lack of land lord and the peace of mind can all benefit you and your family in the long run. If you are contemplating on such a large purchase, here are some timeless first time home buyer tips to help you get started.
Buy When It Makes Sense
With real estate, timing can make a big difference. Yet for most people, it’s not possible to pick the absolute bottom. Like any product where the price is affected by supply and demand, people who try to wait for the absolute bottom usually end up missing it until months (if not years) after. The better approach is to buy only when you can afford it, because you don’t need to worry about the market once you are moved in. If you are very sensitive to the numbers, work out whether it makes more sense to rent instead. It’s straight forward to figure out whether it would cost less to rent a property that you are planning to buy. So you can move wait until it makes more sense mathematically to own.
Get Pre-approved for a Loan Before You Start Looking for a House
During the boom years, you can get a loan for any house you possibly want. These days, the lending standards are much tougher. For first time home buyers, this is actually good because it will limit you on the houses that you can buy. If you are serious and motivated to find a home, first get pre-approved from a lender. Doing so will give you an exact theoretical maximum amount you can offer on a home, which will help you narrow down your home choice considerably (a very good thing actually as there are a too many choices out there).
Consider a Shorter Term Loan
You see 30 year fixed loans as the golden standard in mortgages, but there are actually other, shorter term loan options as well. While the payments are higher, the interest is almost always smaller too. Think carefully about what is affordable to you, but opting for a 30 year, higher fixed interest rate that’s higher than a 15 year and moving in a few years as most first time home buyers do is throwing money away.
Work Out the Numbers Yourself
Every lender will give you different options. Discount points, loan rates, credits towards closing etc will all factor into which option works best for you. Most people just make a decision on the spot, but it’s much better to take all the options and work out the numbers yourself. There are tons of mortgage calculators available online, so do your homework and make the choice that best make sense for your situation.
Figure Out Your Needs and Wants
Once you have an idea of how much house you can (or want to) afford, it’s time to look at the options available. Go to Redfin.com and search for a house that fits your criteria, and make a list of your preferences. Note that the perfect home may not be possible based on your income and down payment this time around, but don’t worry because life will be very boring if you can meet all your hopes and dreams early on in life.
One thing to remember during this whole process is to be patient. From picking a lender to making offers on homes, the patient customer always comes out ahead. Don’t let your emotions and laziness cost you there. Home buying is a major purchase. Take your time.
Get a Competent Agent
Especially for a first time buyer, the whole process is very overwhelming. A competent agent can help answer all your questions as well as guide you through the whole process and give you advice on prices and things to ask the sellers for. Don’t make the mistake and believe that you can pocket part of the buyer agent commissions by not having one, as one mistake can cost you much much more money.
In Fact, Every Transaction Should Have Two Agents
It’s perfectly legal to have one agent represent both the seller and the buyer, but it’s highly undesirable. A seller’s agent will make the case that since realtors are usually local, they will try to look after the buyer’s interest more so than the seller’s interest since they are moving away. Sure, this sounds logical, but how would the seller feel if he knows the agent is helping the buyer as well? Negotiations is a compromise between two parties, and a less than enthused seller benefits no one.
Read and Re-Read Every Single Document That Comes Your Way
Every time you are buying a house, you are helping provide a living for many, many families. Housing is a huge industry with many small related businesses behind each transaction with everyone wanting to sell you more products. Read every document carefully and make sure you know exactly what you are signing before you commit to something that you didn’t know about.
Ask Every Question You can Think of to Everybody Involved
In fact, have a notebook with you and write them all down so you do not forget. The mortgage agent, realtor, fire insurance company, escrow company, and everyone involved are all collecting a fee for a decision that you are making. Ask them lots of questions, and make sure you bounce the same question off multiple people to get a true gauge of the whole situation. The more you know, the less risk you are potentially taking.
Make a List of Everything You’ve Agreed To
Make sure that you get everything in writing. If someone promised you something, ask that person to email it to you so it’s on record. Also, there are many things you will be signing in the whole home buying process. Make sure you keep a list so you know everything you’ve signed up for. One product the mortgage company will likely sell you is an insurance policy in case you lose your job. They will give it to you free for the first year, but unless you want pay for it to give yourself the peace of mind, remember to cancel this service before they start charging you for it.
Don’t be Afraid to Ask for What’s Fair
You may love a particular home, but don’t be afraid to negotiate. Chances are good that the agents, as well as the sellers will work something out to accommodate your needs. If it’s a legitimate request, remember to ask.
But Before You Ask
Always seek the advice of the agent before you tell them what you’d like to ask for. Most of the time, the agent will suggest requesting for things that you haven’t thought of. But if you tell them what you’d like first, it’s less likely that they will provide additional opinion. The other benefit is that her delivery in the negotiations will be much smoother since the request list was the agent’s idea in the first place, and requests will more likely be met.
Other Suggestions for the First Time Home Buyer
- ARM loans – ARM stands for adjustable rate mortgages, and it can actually make sense for those who have irregular income. This is a topic that needs a much lengthier discussion, and is outside the scope of this article. However, definitely talk to your mortgage broker to hear what he/she has to say about it, and whether it make sense for you. Just don’t abuse this. Getting an ARM loan is not a way to qualify for a house you couldn’t afford.
- Prepayment penalties – Make sure you ask whether your loan has a prepayment penalty. If it does, look elsewhere. Simple as that. You can double check your loan when you will receive the Truth in Lending Disclosure Statement. At the bottom of that page, make sure you see the words. PREPAYMENT: If you pay off your loan early, you will not have to pay a penalty.
- Real estate as an investment – Most people over exaggerate how much real estate appreciates. Remember that every month you are living in your home, there are many expenses that go along with it. Buy your home because of the lifestyle, and you will be much happier than thinking about it as an investment.
Yours truly made an offer on a home that’s been accepted. Currently, we are waiting for the loan officer to call Emma’s employer to re-verify that she actually still has a job. Once that happens, we will remove our contingencies and wait till closing before moving in.