Buying your first home can and should be a fun, exciting experience. It will probably also be the single largest investment you ever make. For this reason, it is important to be involved and informed. The series of steps below can help eliminate much of the guesswork and make you a much more informed buyer, so that your home purchase can be a joyful experience.
1. Get Pre-approved for a maximum purchase price before looking at any homes. The last thing that you want to happen is to find your dream home, then make an offer that is accepted – only to find out that there is some error on your credit report that will take more time to correct than allowed by the contract sale date. You want to start looking for homes with the assurance that you are already pre-approved to buy at a certain price limit, so you can negotiate with confidence. Also, many Sellers won’t accept an offer from a Buyer that has not already been pre-approved, and you can easily lose a home that is in demand when you have to get pre-approved and other buyers that are interested are already pre-approved and ready to buy.
2. Determine a realistic price range . Your mortgage lender can determine in a matter of minutes how much of a loan you can pre-qualify for, depending upon your income and debts. With these numbers in hand, you can begin looking at homes that are in your budget.
3. Select a Realtor . Normally, it is best to select a Realtor that has been referred to you by a trusted source. Working with one person that fits your personality and listens to your home needs will help assure positive results. You also want a Realtor that has experience in your area of interest, and can tell you about any nonobvious factors that may affect the value or future marketability of the home you are interested in purchasing. (We have several experienced Realtors that give great service – feel free to contact us for a referral.)
4. View a variety of homes and neighborhoods. Don't be discouraged if you don't find the right home the first day. Also remember that love at first sight can apply to homes, too.5. Select the home for you and make an offer to the seller on an earnest money contract. Your Realtor will prepare the contract and review it with you. When both parties have agreed to all terms in writing, you are on your way to home ownership!
6. Select your loan program and lock in your interest rate. You need to make sure you have selected a loan program that you understand, and one that has been tailored to fit your financial wants and needs. Also, the interest rates move everyday, sometimes several times per day – depending on the volatility of the market. Once you have selected a loan program that you are pre-approved for, you should consider locking in the rate to avoid upward movement.
7. Arrange for a home inspection by a Licensed Real Estate Inspector. Have a licensed pest inspector check the home for termites. Both should provide written reports upon inspection completion.8. Arrange for Hazard Insurance (Homeowner’s Insurance). It is best to have this done at least 1 – 2 weeks prior to your closing to give the insurance company plenty of time to put a quote together.
9. Consider a home warranty plan. Home warranty companies will, upon failure of eligible systems and components of your home, provide for repair or replacement. These plans are effective for one year from the closing date. They can be part of the contract negotiations (to be purchased by either the buyer or the seller).
10. Plan your move well ahead of time. Contact utility companies in advance, and if you are currently renting, give your landlord at least 30 days notice before vacating. Depending on your rental agreement, you may be required to give further advance notice.
11. Enjoy your new home. Homeownership is the American dream. By planning ahead, getting involved and staying informed, you can start building on that dream today.Here Are A Few Mistakes To Avoid:
1. Not Establishing A True Budget Early In The Process Of Consideration A Home Purchase.
2. Not Making “Practice Payments” Equal to Your New Mortgage Payments Before Purchasing.
3. Not Getting Preapproved For A Mortgage Before Starting Your Home Search
5. Don’t Be Enticed By Offers For Mortgage Programs That Appear To Have A Lower Rate Or Payment Without Making An Informed Comparison.
6. Don’t Visit A Model Home Without Your Realtor. If You Do Not Have A Realtor Representing Your Interests, Do Not Sign Anything On The Spot. (the person that will greet you is working for the Builder, not you. You may be agreeing to things with no protection for you.)
7. Buying Furniture Or Establishing New Credit After You Have Been Approved. (this could invalidate your approval)8. Making An Offer On A F.S.B.O. Without Full Knowledge Of All The Contingencies Needed In The Contract To Protect You.
9. Making A Buying Decision Based On Emotion Vs. Information.
10. Not Having A Home Inspection – Even If It Is A Newly Constructed Home
12. Using The Builder’s Or Seller’s Requested Title Company (this is like being a defendant at a trial and using the plaintiff’s attorney to represent you. There is usually a long-standing business relationship or friendship involved, which would likely cause the title company representative to be biased towards representing the interests of the Seller/Builder.)
13. Making Large Deposits Within 60 Days Of Closing. (it will trigger requests for documentation of the source of the funds)14. Not Purchasing An “Owner’s Title Insurance Policy” At Closing -only $35.00 more. (this will save you 30% when you sell or refinance in the future)
15. Closing On Your Purchase Even When All Of The Repairs Or Punch List Items Have Not Been Satisfied. (once its done, its done. Therefore, make sure you have some kind of agreement signed in writing that these items must be completed with an escrow holdback)
Most home purchases can be very smooth, provided all parties handle their responsibilities in a timely manner, and everyone is acting with integrity.Call us if you need help understanding any of these items.
One of the most common mistakes first time homebuyers make is jumping into the emotional frenzy of buying their first home without first analyzing the financial impact and feasibility of the new mortgage payment on their finances.
Not finding out how the mortgage payment will affect your finances can lead to some very hard lessons, and a lot of stress in the household – which is unneeded.The best place to start is a household BUDGET.
Definition : A BUDGET is not just a list of all your monthly expenses. (That is just a list.) A budget is a decision that is made by everyone that has access to household funds, agreeing to a set limit for spending each month.
One of the best ways to really understand what you pay out each month is to get your check register or a list of all the bills that you have paid over a year. Include things that are not monthly, such as car insurance or any other insurance, birthday and other holiday presents that you always buy each year, and anything else you can think of that you paid last year. Divide them up into categories, and take all of those expenses from the prior year and divide each category by 12. This is your monthly cost.
Once You Have An Accurate Budget In Place, Analyze Where You Are Without The New Mortgage Payment.Q: Are you at a positive cash flow or negative?
If you are at a negative or less than $200.00 positive per month, you should probably think twice about purchasing a home at this time until you can get control of your monthly spending, or increase your income. You may get approved for a loan without following this advice, but you may also find yourself in serious financial trouble afterwards, and we would like to help you avoid that if at all possible.
Once you have a positive cash flow, take that amount and add it to your current rent payment. Unless something changes in regards to debts, spending, or income increase, this is the very maximum house payment that you will be able to afford. (I suggest keeping a $200.00 surplus each month at the very least if possible.)
Now Take That New Monthly Payment And Put It Into Your Budget.
Go to our online calculator at www.getmoneytree.com and play with some sales price numbers, etc. Once you find out what loan amount gives you a monthly payment that is in your budget, you can start looking at home prices in your area to see if that will fit your needs.
Before looking at any homes or contacting any Realtors or sellers, you need to get Preapproved. Few Realtors or sellers will consider an offer without a Preapproval letter, and you want to identify in advance any items that may hinder you from getting the loan program and terms you want.
When You Have Been Preapproved For A Maximum Payment
I would take the new monthly payment (including any taxes, insurance, or mortgage insurance) and subtract your current rent. Now set up some kind of “New House” account to put that money in each month so you can experience what impact that new payment will have on your budget. Do this for at least 2-3 months, and you should be prepared for serious house hunting.
If the property value of houses in the neighborhood are falling or stagnate, a lower offer may be in order. Conversely, if home values in the area are skyrocketing, then it may be worth spending a little more. Below are some things to consider when looking at a neighborhood.
Neighborhoods have personalities - find out what each one is. Ask some of the people in the neighborhood what they think of it. Ask how they perceive crime, the schools, pollution, noise and traffic. Human input is always better than reports.
A good way to check out a neighborhood is to simply drive around it. Drive through the neighborhood at different times of the day – on weekdays as well as weekends. Find out what people do, and what there is to do. Get a first hand look at traffic and the stores you will have close to you. See what the area's schools look like. The condition of the schools and roads will tell you a lot about the area.
Find out the crime report for the area. Start at the local police department and ask them for any statistics they can provide. Check for graffiti and vandalism.Schools
Families with kids often pick a school district before they choose a house. Remember to also check out the schools that your kids will be attending 3-5 years from now, because most people stay in a home about 5-7 years.
Location
How long will it take you to get to work? A long commute may not save you money or time. Also, are there any parks around? How easy is it to get to the interstate? What do the other houses look like? Shopping close by? (If possible, try to leave early for work one morning and drive to the property – then drive to your job during rush hour. You will have a real idea of what your commute times will be.)
Property Values
It's a good idea to research recent selling prices for houses in the neighborhood and how much houses have increased in value in the past 10 years. Ask how much property taxes have increased, or contact the county tax assessors office for a history of increases.
Utilities
Find out utility costs. Normally the utility companies will give you a 12 month history. Also find out if cable and internet access are available to the house.
Future Development
Look for new construction in the neighborhood. Area growth can raise property values. However, it can also raise taxes and traffic congestion. Also look for any planned commercial construction. You really don’t want to move into your home and find out 3 months later that they are going to put in a landfill at the end of your street.
Mortgage Planning is very similar to Financial Planning in that your current and future expenses, investment goals, and future plans are all analyzed to prepare a mortgage "strategy" that will best accomplish these goals for you and your family. This is a Specialized service that is offered by very few companies, because it requires a longer commitment of time with the customer, specific training and understanding of finances, and a desire to help everyone you meet.
Most mortgage companies are filled with "loan salespeople" that will sell you whatever product you ask for, regardless of the impact that program will have on your family's future. Most of them don't know what questions to ask, so often even well-meaning loan salespeople are just not educated or trained well enough to help you make the best decision.
As a Mortgage Planner, it is my goal to help you understand that your mortgage is the largest and most important investment you may ever make, and it will impact your financial life for years to come. It is a long-term commitment that - depending on how it is structured - can either restrict your financial opportunities, or give you the freedom and flexibility to achieve your dreams for your family.
As your Mortgage Planner, I will ask you questions that most loan salespeople will not. The answers to these questions can save you thousands of dollars in a very short amount of time, and keep you from making big mistakes in how you structure your financing.
I look forward to serving you and your family as your Mortgage Planner, and hope that my service will compel you to refer your friends, family, and co-workers to me to help them as well.
Sincerely,