Are You Ready to Buy a Home?
Buying your first home can be both exciting and overwhelming. The thought of owning a home is a dream for many, but all of the logistics, terminology, and seemingly conflicting information out there can easily become confusing and discouraging. Don’t let the home-buying process become a burden! Our team of real estate experts is here to educate and advocate for you to help you buy a home that you love and won’t hurt your future financial goals.
Before you begin the process of first time home ownership, it’s important to be financially and mentally prepared for the responsibilities it brings. Owning a home doesn’t just mean you’ll be able to paint the walls whatever color you like, you also have to take into account a monthly mortgage payment, utilities, taxes, and home repairs and maintenance. Whether you’re just starting your journey to home ownership, or you already have money set aside and have started looking at homes, ask yourself the following questions to find out if you really are ready to buy a home:
How much can you afford?
It can be discouraging to find that your salary won't stretch as far as the home you want to own. However, sacrificing a huge part of your income just to pay the mortgage can very quickly make home ownership a burden rather than a point of pride — particularly when you factor in the cost of regular home maintenance and unexpected repairs. It’s better to buy a modest home now that fits your budget and look at purchasing your "dream home" a few years down the line.
What is your debt-to-income ratio?
This is one of the first things lenders look at when determining how much of a loan you may be approved for. Your overall debt should not be more than 40% of your income, and your housing debt should not exceed 32%. Depending on your income, what 32% will buy you can vary drastically by location. Rural areas may allow for a larger property with some acreage, while urban or highly sought after subdivisions may be out of reach. Take a critical look at your entire financial situation. Take into account any loans your already have (including student loans or car payments) and your current monthly expenses, and see how a mortgage payment will affect your bottom line.
What do you want?
Do you like the idea of cleaning your own gutters? Do you shudder at the thought of lawn care? Would you rather just pay a fee every month and have everything done for you? Would obeying rules about when you can have your garbage cans out bother you, or do you want to live in a neighborhood where everything is 'just so'? The answers to these questions can help you narrow down the search for the right type of property for you.
Common Mistakes to Avoid
Assuming you won’t qualify
Many renters think they can’t afford to buy a house because they haven’t saved enough to pay a 20% down payment. However, you might be surprised to see what kind of house you could potentially buy based on the amount you spend each month on rent. Try plugging some numbers into an affordability calculator to get a better sense of how much you have or what you may need. You can also contact a lender and find out how much of a loan you be qualified to receive.
While 20% may be an ideal, you don’t necessarily need that large of a down payment to buy a home. There are loan programs that cater to first-time home buyers, such as the FHA loan, which allows for down payments as little as 3.5%. Even some conventional loans allow for down payments as low as 3%. Certain loans, such as VA loans for veterans and military or USDA loans for buyers in rural areas, don’t require a down payment at all.
Getting pre-qualified at the last minute
Many first-time buyers wait until they’ve found a home they want to buy before taking to a lender, but there are many benefits to getting pre-qualified early. Pre-qualification can help you shop in your price range, act fast when you find a house you want to make an offer on, and catch — and correct — any errors on your credit report before they cause a problem with your loan. This could help save you thousands in the long run because an error on your credit report could result in a lower credit score, leading to a higher interest rate.
Only talking to one lender
Many home shoppers use a lender who was recommended by a friend, family member or real estate agent, and they don’t bother shopping around. But that doesn’t guarantee you’ll get the best rate, or even get a lender who is experienced with loans for your particular situation. The CFPB recommends talking to at least three lenders to get the best loan for you. Although it’s not required, most home shoppers end up getting a loan through the lender who pre-approved them. So it’s a good idea to do your research with lenders early, at the pre-approval stage.
Don’t know where to start? We have several lenders we work with frequently and can recommend!
Spending your entire budget
When a lender provides a pre-approval or pre-qualification letter, they’ll typically include the maximum amount they will lend you. But just because a lender will let you borrow a certain amount doesn’t mean you should spend it. There are rules lenders follow to determine what you can borrow, such as the 28/36 rule, which says that a homeowner should spend no more than 28 percent of their gross monthly income on housing expenses, and no more than 36 percent on overall debt. But buying a home also comes with significant upfront costs, such as the down payment and closing costs, so you’ll want to make sure you have savings left for emergencies and other unexpected expenses after you close on your new home.
Not researching down payment assistance programs
Saving for a down payment is often cited as the biggest hurdle to homeownership for first-time buyers. But did you know there are thousands of down payment assistance programs in the U.S.? These programs typically offer “soft” second or third mortgages or grants which allow for zero percent interest rates and deferred payments. Contact Us today to find out if there are programs that you may qualify for.
Understanding the Home Buying Process
Loan approval / Funding is the first step in beginning your home search. This approval places the buying power in your hands! If you are unsure of where to start, our preferred vendors are here to provide you quality service and trust.
This required form allows The Realty Shop to utilize our resources, tools, and experience to partner with you on your home buying experience. With this document, we become your advocate, support, and advisor through your home buying experience.
ADVANCED PROPERTY SEARCH
Through our advanced technology, resources, tools, and expanded network of reach we will work with you to identify areas and homes that align with your price point and home priorities. Through our portal you will be able to search properties and identify your top selections.
During this stage you will be able to view homes identified through your Advanced Property Search! Your Realty Shop Team will be there to answer questions, consider resale value, address current home value, provide comparative sales data and be your on-hand home expert.
OFFER & NEGOTIATIONS
Once we have identified your new home, DON’T WAIT! This process can happen quickly as homes are limited in our current market. Your Realty Shop team will be here to assist you through this process to ensure we are advocating on your behalf to secure your home at the right price and condition.
In addition to our team of Agents and Management, you will be provided with the support of our seasoned Transaction Coordinator (TC). With your Agent, Team Management, and TC support we will work to ensure a smooth, successful closing to secure your new home.
Things to Consider Before Buying
BUDGET: Consider all aspects of your home purchase when outlining your budget:
Home Warranty Cost
WISH LIST vs MUSTS: We will provide you with a “Buyers’ Wish List” that will help to identify key elements for your new home. Consider the following:
Age of Home
Bed / Bath Count
Yard Needs / Restrictions (Pool, Fence, etc)
Zip Codes of Consideration
Home Search Range
Are You Pre-Approved?
With so many options to choose from, finding the right loan can be challenging to navigate. The Realty Shop partners with select, carefully vetted lenders to get you approved for the best loan to suit your needs, including HUD / FHA / USDA, Conventional, VA Loans, 203k Rehab, Non-Conforming, and Down Payment Assistance (to those who qualify). On average, the national approval rate is only 88.2%, while The Realty Shop boasts a 97% rate! Worried about your credit score? Everyone has a different credit snapshot. Our partners offer credit repair options to provide the support you need to get you closer to your home owning dream.
Congrats! Once you’ve been pre-approved, its time to start the fun! Just make sure to follow The 10 (Loan) Commandments to avoid any unfortunate mishaps that could delay or make you miss out on the purchase of your new home.
The 10 (Loan) Commandments
THOU SHALL NOT…
Change jobs, become self-employed or quit your job
Buy a car, truck or van
Use charge cards excessively or let your accounts fall behind
Spend money you have set aside for closing
Omit debts or liabilities from your loan application
Buy furniture with cash or credit unless lender approves
Originate inquiries into your credit
Make large deposits without first checking with your lender
Change bank accounts
Co-Sign a loan for anyone