BOISE, Idaho, November 4, 2016 — Buying a home is an exciting milestone for any individual to reach. But for the first-time buyer, that excitement can be muted by the stress associated with the confusing process of home ownership.
First off, new homebuyers run into a daunting thicket of complicated real estate terminology and industry jargon. Short sales, escrow, appraisals, mortgages, APRs (annual percentage rates) — all these and more are terms that can prove confusing when you’re involved in the complex project of buying your first home.
Even more problematic than understanding this new vocabulary, new homebuyers often don’t even know where to start when it comes to searching for the right home or looking at financing what, for most of us, is the biggest and most complicated purchase we’ll ever make.
A major concern for first-time homebuyers is that they lack a working knowledge of the complex process of buying a home, something that can seem bewildering indeed. But, as with much of life, the best way to relieve this kind of stress and anxiety is to get educated on the subject.
For starters, begin by asking your peers, your family members, and co-workers about their own experience when they bought their first home. Ask them for tips on the best way to proceed, but also be sure to ask them about any obstacles or pitfalls they encountered, the kind of things they wish they had known from the beginning. Gaining insights from homeowning family and friends can be a great first step to take.
In addition, many first-time homebuyers don’t realize they have the option of attending an informative class in home ownership as well. Some lenders actually require you to complete a homeowners education class to qualify for certain types of loans. Even if you aren’t required to complete such a class, community colleges and even some realtors offer short but useful seminars that help simplify your understanding of the process.
Whatever your situation, whether you learn about real estate transactions from family, friends or professionals, ou’ll feel more confident when you have a thorough understanding of the ins and outs of finding a home, purchasing it, maintaining it, and eventually selling it.
Knowing Your Financial Situation
Having a working knowledge of your personal or family financial situation—income, expenses, cash flow, insurance and existing monthly payments—isn’t the most original idea when it comes to purchasing a home. Yet such knowledge is actually an important step when you’re first attempting to grasp the intricacies of the kinds of financial information you’ll need to know and document when buying a home.
Credit scores, prevailing interest rates, homeowner loans and subsequent mortgage payments as well as taxes and insurance are all part of the home buying process. For many first time purchasers those concepts and numbers can seem dense and confusing.
Bottom line: Take a look at you or your family’s financial situation. In the preapproval process, you’ll need to convince any lender that there’s room in your family budget for what will likely become your biggest and most important monthly payment.
Before you get through the preapproval process you’ll need to find out how much house you can afford. Have you worked out a budget for this new long-term commitment? What size and price range of home do you think you can you afford? Just as important: How much do you currently have in savings? You’ll generally be required to come up with a down payment on your new mortgage loan.
Another item of key importance: How is your credit? Have you checked your credit score or scores? A low credit score could either scuttle your loan approval or cause you to have to pay a higher interest rate and mortgage insurance on your loan. If you find you’re short of a required down payment, trim unnecessary items from your monthly budget and add those saving to what you already have until you’ve built up your financial war chest.
As you get to that savings goal, also be sure to work on improving your credit score if you discover it’s too low for a decent interest rate as well as a loan approval. Work with the ratings agencies if necessary to remove outdated or incorrect data from your credit file, making sure that your current credit report or reports to ensure your credit situation is more appealing to prospective lenders than may presently be the case. Also, be sure to make your payments for credit card balances, utilities, and auto loans on time and don’t take out any other big loans, or close any longstanding credit accounts you no longer lose. Any of these items can drop your credit score for at least a calendar quarter or two.
The whole idea here is to do what it legally takes to make your personal credit situation and score look stable and appealing to any lender. If you’ve done your homework here, your banker or real estate agent can help you as you work through additional items in the home buying process.
Rely on your Real Estate Agent
Your real estate agent will become your closest ally in this adventure, so the best advice is work with family, friends or your banker to find a reputable and highly regarded agent. Once he or she is on board, be sure to tell your new agent precisely what you’re looking for in a home, what’s important to you, and what you realistically might expect going forward.
Working with your specifications, your real estate agent will work to find you the best home, one that meets most of your criteria as well as falling into an acceptable monthly payment range. In the process, trust your agent to guide you through selection, trust him or her to match your requirements with what’s currently on the market.
Your agent can tell you what a reasonable offer might be, whether a given home is appropriately or accurately listed, when to put in an offer, and whether a given house will grow in resale value. In a buying situation that can seem incredibly dense and confusing, a good real estate agent can also be hugely helpful in deciphering the complicated business and process of home buying.
Agents understand how to negotiate, how to set up a walk-through and what (and how much) paperwork you’ll need to do when applying for a loan. Don’t underestimate the help they can provide.
Ask any Question
Make sure to ask question from anyone involved in your home purchase. It’s a big commitment and you’ll want to make sure you enter into this transaction well-informed and with your eyes open to detail. Non-real estate and finance specialist may not be able to offer you legal or financial advice, but they will tell you where you should be going to get those answers.
It might be a cliché today to say that there are no stupid questions when buying real estate. But that old cliché is absolutely on the money when it comes to a big investment like buying a home. For example, if you’ve never owned a home before and if you don’t ask someone about how property tax works, why refinancing your loan at some point could be important, or what level of loan closing costs you can expect, you might get blindsided during settlement. You need to understand everything about the process so you can make the best decisions. So when it comes to “stupid questions,” ask, ask, ask.
Buying a home is a long-term investment. Tt can sometimes be difficult to make decisions today based on how you feel now and how you might feel later when reflecting on those decisions. In some ways, the purchase of a new home involves the same kind of decisions you need to make when taking out a new car loan, except the amount involved in a home purchase is considerably larger and is paid out over a much longer period of time.
As with that car payment, there’s that matter of time: How long do you want to finance that home purchase? The longer the duration of the loan, the lower the payment, but the higher the amount of interest you’ll be paying on that loan.
In addition to duration and monthly payments, as you decide on whether you should take out (or afford) a 15 or 30 year mortgage, you’ll need to realistically project how long you plan on being in this home, and how easy it’ll be to sell when it’s time to move on.
Or perhaps you’re planning to stay put for a considerable amount of time. If so, you may be able to save money later by refinancing your existing loan, either to reduce the rate of interest or shortening the duration of the loan to save on those interest expense. There’s a great deal that goes into refinancing a home and you’ll need to know how to prepare for it.
When it comes to the home you’re buying, is the home new or relatively new. Or is it a vintage model. If there’s work to be done to the home you’re buying, you’ll need to be realistic on cost and the time frame it will take to fix before buying, refinancing, or selling. If updates or repairs are critical but if you really want that old house, knowing how much that work might cost might help you negotiate a reduction in the price you offer a seller or whether you might ask the seller for certain concessions to close the deal.
Other long term considerations have to be factored into your purchase as well. You’ll want to consider the current state and stability of your local housing market: so called “national” figures don’t always pertain in every area of the country.
Also, in our current economy, seriously evaluate the stability of your income, and any long-term goals you might have. Are you planning to have a family soon? Do you plan on getting a dog? Would you like to live in a development where maintenance and exterior appearances are enforced by a homeowners association? These are all long-term questions to ask when thinking about the type of home you need.
After you sign the last piece of paper at the settlement table, you might not be ready to be a licensed real estate agent. But you will find you have had many of your earlier questions answered. Better yet, as you jump in the car to head for your new home, you’ll also realize you’ll never have to be a first-time home buyer again.
When you’ve finally made the decision to search for and purchase a home, the best thing you can do is to get educated, know your financial situation, rely on your real estate agent and other professionals for help, ask any questions you have, and think long-term before you sign that contract.
Above all, trust that your first home buying experience may be stressful. But it’s still exciting, and if carefully done, it will be a rewarding experience as well.