First Time Home Buyers
Buying your first home can be an anxious time for many people. You need to have a partner who you can trust, and who has the experience and knowledge to let you know all of your options, and guide you through the process, from start to finish.
In my many years in the St. Louis real estate market, I have assisted hundreds of individuals and families just like you take that first big step, and move into a home of their own. And many of the questions and concerns that I hear are common among most first time home buyers. I’ve compiled a list of the most common questions that I hear from first time buyers, and hopefully this can address some of your concerns up front about the process of buying that first home.
Q: Why should I buy, instead of rent?
A: This one is quite common, and important – as it leads to the decision to purchase a home in the first place. And the answer is simple: a home is an investment, even in the current housing market.
When you rent, you write a monthly check and that money is gone, forever. But when you own your home, your payments go towards building equity in an asset that you may have for many years.
Another great aspect of owning your own home is that you can deduct the cost of your mortgage loan interest from your federal taxes, and usually from your state taxes as well. This will save you lots of money each year, because the interest you pay will make up a large portion of your monthly payment during the early years of your mortgage. You can also deduct the property taxes you pay as a homeowner.
In addition, the value of your home should appreciate over the years, although there will be times when this growth in value is much larger than others.
Finally, you’ll enjoy having something that’s all yours – the pride you feel in a home for yourself and your family, where your own personal style can tell the world exactly who you are!
Q: What are “HUD” homes, and are they a good deal?
A: Yes, HUD homes can be a very good deal. When someone with a HUD insured mortgage can’t meet the payments, and the lender forecloses on the home, HUD pays the lender what is owed and takes ownership of the home. Then they sell it at market value as quickly as possible. This can make for some very good buying opportunities for those looking for their next home.
Q: Can I become a homebuyer even if I have I’ve had bad credit, and don’t have much for a down-payment?
A: In this situation you could be a good candidate for one of the federal mortgage programs. I can guide you through this process, or you can start by contacting one of the HUD-funded housing counseling agencies that can also help you sort through your options. Also, you can contact your local government office or chamber of commerce to see if there are local homebuying programs that might work for you. Look in the blue pages of your phone directory for your local office of housing and community development or contact the mayor’s or the county executive’s office.
Q: Are there special homeownership grants or programs for single parents?
A: There is certainly help available. The easiest way to find out more is to work with a well-experienced real estate broker such as myself, who has the knowledge to walk you through your options. Of course you won’t have the benefit of two incomes on which to qualify for a loan, so consider getting pre-qualified, so that when you do find a house you like in your price range you won’t have the delay of trying to get qualified. Contact one of the HUD-funded housing counseling agencies in your area to talk through other options for help that might be available to you.
Research buying a HUD home as noted in the last question, as they can be very good deals. Short sales or foreclosures can also provide potentially good deals. As noted above, you can also contact your local government, chamber, mayor’s of county executive’s office to see if there are any local homebuying programs that could help you.
Q: Should I use a real estate broker?
A: Yes, using an experienced real estate broker like myself is a very good idea. All the details involved in home buying, especially the financial ones, can be quite confusing for the novice. When you work with a real estate professional with years of experience and knowledge such as myself, I can help guide you through the process and make it much easier on your part.
I am well-acquainted with all the important things you’ll want to know about a neighborhood you may be considering…the quality of schools, the number of children in the area, the safety of the neighborhood, traffic volume, and more. I can help you figure the price range you can afford and search the multiple listing services and other ad sources for the appropriate homes you’ll want to see.
With immediate access to homes as soon as they’re put on the market, I can save you many hours of wasted driving-around time. When it’s time to make an offer on a home, I can point out ways to structure your deal to save you money. I can also explain the advantages and disadvantages of different types of mortgages, guide you through the paperwork, and be there to hold your hand and answer last-minute questions when you sign the final papers at closing. And you don’t have to pay a broker like me anything! The payment for what I do comes from the home seller – not from you, the buyer.
It should also be noted, if you want to buy a HUD home as noted above, you MUST use a real estate broker to submit your bid.
Q: How much money will I have to come up with to buy a home?
A: Well, that depends on a number of factors, including the cost of the house and the type of mortgage you get. In general, you need to come up with enough money to cover three costs: earnest money, or the deposit you make on the home when you submit an offer, to prove to the seller that you are serious about wanting to buy the house; the down payment, a percentage of the cost of the home that you must pay when you go to settlement; and the closing costs, the costs associated with processing the paperwork to buy a house.
When you make an offer on a home, your real estate broker will put your earnest money into an escrow account. If the offer is accepted, your earnest money will be applied to the down payment or closing costs. If your offer is not accepted, your money will be returned to you. The amount of your earnest money varies.
The more money you can put into your down payment, the lower your mortgage payments will be. Some types of loans require 10-20% of the purchase price. That’s why some first-time homebuyers turn to the FHA for help, as they only require 3% down – and sometimes less.
Closing costs, which you will pay at settlement, average about 3-4% of the price of your home. These costs cover various fees from your lender and other processing expenses. When you apply for your loan, your lender will give you an estimate of the closing costs, so you won’t be caught by surprise.
Q: How do I know if I can get a loan?
A: Use a simple mortgage calculator to see how much mortgage you could pay, that’s a good start. If the amount you can afford is significantly less than the cost of homes that interest you, then you might want to wait awhile longer. But before you give up, why don’t you contact a real estate broker or a HUD-funded housing counseling agency? They will help evaluate your loan potential.
A broker such as myself should know what kinds of mortgages lenders are currently offering, and help you choose a lender with the right program for you. Another good idea is to get pre-qualified for a loan. That means you go to a lender and apply for a mortgage before you actually start looking for your next home. Then you’ll know exactly how much you can afford to spend, and it will speed the process once you do find that home of your dreams.
Q: How do I find a lender?
A: There are many potential financing options, such as a loan from a bank, a savings and loan, a credit union, a private mortgage company, or various state government lenders. Shopping for a loan is like shopping for any other large purchase: you can save money if you take the time to look around for the best prices. Different lenders can offer very different interest rates and loan fees; and as you know, a lower interest rate can make a big difference in how much home you can afford. You should compare the terms offered by several lenders before you decide, which I can facilitate for you.
Most lenders need about 3-6 weeks for the whole loan approval process. An experienced real estate broker such as myself will be familiar with lenders in the area and what they’re offering. Or you can look in your local newspaper’s real estate section, in our case the Post Dispatch, which will list the interest rates being offered by local lenders. You can find FHA-approved lenders in the Yellow Pages of your phone book. HUD does not make loans directly – you must use a HUD-approved lender if you’re interested in an FHA loan.
Q: In addition to the mortgage payment, what other costs do I need to consider?
A: Well, you’ll have your monthly utilities of course. If your utilities have been previously covered in your rent, this may be a new expense for you. I can help you get information from the seller on how much their utilities normally run.
In addition, you might have homeowner association or condo association dues. You’ll definitely have property taxes, and you also may have city or county taxes. Taxes normally are rolled into your mortgage payment. Again, I can help you be able to help you anticipate these costs.
Q What will my mortgage payment cover?
A: Most loans have 4 parts: principal: the repayment of the amount you actually borrowed; interest: payment to the lender for the money you’ve borrowed; homeowners insurance: a monthly amount to insure the property against loss from theft, fire, smoke, and other hazards required by most lenders; and property taxes: the annual taxes assessed by your city/county on your property, divided by the number of mortgage payments you make in a year.
Most loans are for 30 years, though 15 year loans are usually available too. Because of the way loans are structured, in the first years you’ll be paying mostly interest in your monthly payments, which is OK, because of the tax advantages you receive from the interest paid on a mortgage. In the final years, you’ll be paying mostly principal.
Q: What do I need to take with me when I apply for a mortgage?
A: This is an important question, because if you have everything with you when you visit your lender, you’ll save a good deal of time! You should have: 1) social security numbers for you and also your spouse if applicable; 2) copies of your checking and savings account statements for the past 6 months; 3) evidence of any other assets like bonds or stocks; 4) a recent paycheck stub detailing your earnings; 5) a list of all credit card accounts and the approximate monthly amounts owed on each; 6) a list of account numbers and balances due on outstanding loans, such as car loans; 7) copies of your last 2 years’ income tax statements; and 8) the name and address of someone who can verify your employment. Depending on your lender, you may be asked for other information.
Q: I know there are different types of mortgages. Which one is best for me?
A: There are many types of mortgages, and the more you know about them before you start, the better. Most people use a fixed-rate mortgage. In a fixed rate mortgage, your interest rate stays the same for the term of the mortgage, which normally is 30 years. The advantage of a fixed-rate mortgage is that you always know exactly how much your mortgage payment will be, and you can plan for it. Another kind of mortgage is the Adjustable Rate Mortgage (ARM), where your rate is tied to a nationwide financial index, so it can change (either up or down) as often as once or twice a year. These types of loans have fallen out of favor after the subprime mortgage problems that began in 2008.
FHA loans are also available to many, although the FHA doesn’t actually make any loans themselves. Instead, they insure loans – so that if a buyer defaults, the lenders will still get their money. This encourages lenders to give mortgages to people who potentially would not otherwise qualify for a loan. An experienced real estate broker like myself can provide you with information about the various kinds of loans, before you begin shopping for a mortgage.
Q: When I find the home I want, how much should I offer?
A: Again, a real estate broker with years of experience such as myself can really help you here. But in general, the things to consider are:
1) Is the asking price in line with prices of similar homes (comps) in the area?
2) Is the home in good condition or will you need to spend a substantial amount of money making it the way you want it? (You probably want a professional home inspection before you make your offer. I can help you arrange one).
3) How long has the home been on the market? If it’s been for sale for awhile, the seller may be more eager to accept a lower offer.
4) How much mortgage will be required? Make sure you can really afford whatever offer you make. You may have heard the term “house poor”, which refers to individuals who are paying so much for their house payment that there is little left for anything else.
5) How much do you really want the home? The closer you are to the asking price, the more likely your offer will be accepted. In some cases, you may even want to offer a bit more than the asking price, if you know you’re competing with others for the house.
Q: What if my offer is rejected?
A: First, you should know that they often are! But don’t let that stop you. Now the real negotiating begins, and I can help you with the entire process. You may have to offer more money, but you may ask the seller to cover some or all of your closing costs, or to make repairs that weren’t part of the original deal.
Often, negotiations on a price go back and forth several times before a deal is made. Just remember, don’t get so caught up in negotiations that you lose sight of what you really want and can afford!
Q: So what will happen at closing?
A: Basically, you’ll sit at a table with your agent, the seller (typically) and their broker, and a closing agent. The closing agent will have a stack of papers for you and the seller to sign. While he or she will give you a basic explanation of each paper, you may want to take the time to read each one and/or consult with a veteran agent like myself to make sure you know exactly what you’re signing. After all, this is a large amount of money you’re committing to pay for a lot of years!
Before you go to the closing, your lender is required to give you a booklet explaining the closing costs, a “good faith estimate” of how much cash you’ll have to supply and a list of documents you’ll need at closing. If you don’t get those items, be sure to call your lender BEFORE you go to closing. Be sure to read our booklet on settlement costs. It will help you understand your rights in the process. Don’t hesitate to ask questions.
Also, be aware that when you work with me to find your first home, I can notify you about upcoming properties BEFORE they are even added to the Multiple Listing Service (MLS) database, giving you a “leg up” on all the other couples or individuals who are looking for the same type of house you are, and competing with you for that perfect home! Fill out this simple Contact Form to be added to my database of potential buyers, and find out about many homes before anyone else!
Buying your first home is an exciting, but also anxious time for most buyers! But when you work with experienced agent such as myself, the process will be much easier and less stressful for you and your family, and before you know it, you’ll be enjoying your brand new home!
And would you like to find out about many area homes before the competition? Fill out this simple Contact Form to be added to my database of potential buyers, and receive them via email before they have even been added to the Multiple Listing Service (MLS).