First Time Home Buyers
Buying your first home can be a fun, but complicated, thing to do. Here are some questions to think about if you are considering taking this next step:
- Do a rent versus purchase calculation to decide if now is the right time to buy. The embedded link to the NYT calculator is pretty darn cool.
- Do you have enough for the down payment? 20% or more is great and will ensure you avoid any extra surcharges like PMI (Private Mortgage Insurance). A large downpayment also helps an offer to be competitive if the property in question might receive multiple offers.
- Financing is key, so before you start writing any offers to purchase a home, please review your credit score to see if there is anything you need to do to improve that score so that you can qualify for the very best interest rate possible on a home loan.
- It’s also important to be realistic about the cost of home ownership. It’s a lot of responsibility! But also realize that you still can deduct all that interest you are paying on your loan from your taxes, and that can help you to save a lot on your annual tax bill.
This is a good action checklist to consider:
- Get your financial house in order. Before you decide to buy a home, it’s essential to make sure your credit is in good shape and repair any damage previously done. Know your credit score: 35% of successful buyers recently reported they didn’t know their credit score when they went house shopping, according to a national survey fielded for MortgageMatch.com. Having enough money set aside for a down payment is a key component to making sure you are ready to purchase a home. Also, it’s important to not put all of your money in the down payment as other fees or unexpected expenses often arise after closing.Don’t fall in love with a house you can’t buy
- Find out how much you can afford. Establish your purchase power upfront, including how much money will be required for a down payment and closing costs, is a must for first-time buyers. Look for special loans available from FHA and government sponsored loans for first-time home buyers that reduce the amount of money required to get into a home.
- Learn the lingo. Since first-time buyers are new to the market and will finance a significant portion of their purchase, it’s important to get familiar with the processes and terminology associated with home buying. Here are a few key terms to add to your vocabulary:
Bait Rate: Misleading mortgages with low rate promises and no contingencies generally for those with extraordinary credit. Rates are based on: credit, debt-to-income and loan-to-value ratios, the size and type of loan, property location, and the day you lock your rate, etc. The loan isn’t locked until the application is accepted. By then, it may be too late to find a better rate from another lender.
Basis Point: A term used in the mortgage industry which simply means 1/100th of 1 percent.
Closing Costs: The fees required to process and close your loan. They’re a cash obligation running from three to five percent of the purchase price. Motivated sellers might pay a portion of these costs.
FHA: Federal Housing Administration, the Federal Government Agency that oversees the US Housing market. FHA Loans are loans insured by the Dept. of Housing and Urban Development.
FRM and ARM: A Fixed Rate Mortgage Loan (FRM) is a loan where your interest rate stays the same for the life of the loan. ARMs are Adjustable Rate Mortgages with variable interest rates that fluctuate based on an agreed-upon index.
GFE: The Good Faith Estimate (GFE) is a document explaining all costs involved in getting a loan.
TIL: The Federal Truth-in-Lending Form is a document that spells out the costs and fees of the loan.
Per Diem Interest: Interest you pay per day, from the day you close to the last day of the month.
Underwriting and Underwriting Fees: Underwriting is a process the lender performs to qualify a borrower for a loan and the fee is what you pay the lender at closing to cover evaluating the risk involved with loaning you money.
Warranty Deed: A legal document guaranteeing the seller has a right to sell a property, which is very important if you are considering a distressed or discounted property.
Find a real estate agent to represent you and go shopping. Finding a licensed professional that you like, trust, and respect will make the process smoother and easier to understand. Once you find an agent, share your realistic budget and what you’re looking for in a home. Work together with your agent to find the best home for you.
For more information on becoming a first-time homebuyer, check these resources:
Reality Checklist – Are you sure you’re ready to buy? Here’s how to know!
Move.com Home Finance – Equips first-time buyers with tools, guides, advice, and more
- The Art of Manliness (personal blog with a pretty good run-down of the steps involved, worth looking at despite the blog’s title)
- How Stuff Works
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