Things to Consider when Buying your First Home
Buying a home for the first time is an exciting fulfillment of the American Dream. As a first time homebuyer, you need to do your homework in order to avoid pitfalls before you make an offer. With some time well spent, you can make a wise decision and enjoy your starter house or dream home for many years to come.
These are some important things to consider as a first time homebuyer:
#1 – Choose the Right Real Estate Agent
One of the smartest things you can do is to work with a real estate agent who is experienced in the local area and has worked with first time homebuyers in the past. A real estate agent can guide you in learning how much you can afford, help you find the perfect home and help negotiate the deal.
#2 – Know How Much You Can Afford
As a rule of thumb, your monthly mortgage payment should be anywhere from 28 to 33 percent of your monthly income. If you have a down payment of at least 20 percent of the selling price, the bank or mortgage lender may qualify you at 33 percent housing expense to income. Buyers putting down less may be required to have a monthly payment that is only 28 percent of the monthly income. Take monthly expenses into consideration including taxes, insurance and transportation, and be sure to ask if there are any special programs available for first time homebuyers.
#3 – Understand Different Types of Mortgage Loans
The type of mortgage you get affects the interest rate on the mortgage loan and ultimately determines how much you will be paying monthly now and in the long run. Fixed rate mortgages have the same interest rate for the duration of the loan, whether it is 30 years, 15 years or some other duration. An adjustable rate loan, known as an ARM, has an interest rate that may escalate as time goes by, thereby increasing your monthly payments. A balloon payment mortgage has a large final payment that becomes due upon the termination of the loan.
#4 – Think about the Location
You may have found a dream home, but if it is nowhere near the amenities you need now or in the future, you may be asking for trouble. Consider how far the location is from your place of business and the transportation options available. It may be a good idea to actually stay in the area and take the route or public transportation you will be taking at the time you will be traveling to see traffic patterns and bus or train schedules at that time of the day. Also, note how close you are to shopping, restaurants, recreational facilities like parks and golf, and major roadways.
#5 – Investigate the School District
If you have children, or you are planning on a family, find out the facts about the school district in general and the schools your children will attend in particular. Do some research online to learn about facts like average standardized test scores and teacher/student ratios. Then visit the school to find out about issues like how electronics are used in the classroom and which specialized classes are offered.
#6 – Get a Professional Home Inspection
Once you determine that the home has enough living space with the appropriate number of bedrooms and bathrooms, look at the grounds to make sure there is room for the kids to play or for that swimming pool you always wanted. Before you finalize the deal, have the home inspected by a licensed professional. Foundation and electrical problems can be a red flag, but a home inspection can reveal the problem and you can demand that the seller remedy the situation. You will also want to know when the roof was last replaced and what materials were used in a kitchen and bathroom renovation.
#7 – Negotiate a Fair Price
When you decide to make an offer on a home, you need to know the local market in order to make a fair offer for the property. Your real estate agent can help by providing you with a Comparative Market Analysis that lists comparable homes that were sold recently in the area. Based on the selling price of these homes, you can determine a fair offer to the seller.
#8 – Anticipate Closing Costs
Bring along your checkbook when it is time to go to closing. Typical closing costs include title Insurance, a mortgage origination fee, a credit report, recording fees, an underwriting fee, property tax escrow and interim interest. You may be required to purchase mortgage insurance, and you may wish to pay “points” to lower your mortgage rate of interest.