First-Time Home Buyers Guide
1. Start saving for a down payment
Although putting down 20% is recommended and has its benefits, you can now put down as little as 3%, or with some government programs, no money down! However, putting down less than 20% means a higher monthly payment and mortgage insurance. Mortgage insurance protects the lender in the case you default on your payment. It’s also a great idea to build an emergency fund in the case something arises.
2. Check your credit score and evaluate it constantly
Most mortgage programs will require a credit score of at least 620. Be sure you check your debt to income ratio. If possible, pay down as much of your debt as you can before applying. Your monthly debt to income ratio will affect how much you get approved for and your rate. Aim for a debt to income ratio of about 30%.
Once you apply for a mortgage, avoid opening any new credit accounts because this may lower your credit score. Wait until the home buying process is done.
3. Evaluate what a comfortable monthly payment will be for you
Play around with this mortgage calculator and see what works best for you. If you are currently renting, work the math out and see whether it makes sense to continue renting or purchase a home and start paying off the principal sooner. Often times, the latter makes more economic sense, however you must be aware of the full costs of property including utilities, property taxes, landscaping, etc.
Be sure to save money for closing costs. That accounts for about 2% to 5% of the loan principal.
4. Figure out which mortgage option is best for you
As mentioned earlier, there are multiple options for financing including programs that don’t require a down payment. Below is a list of some of the most popular options:
If you’re looking for the lowest mortgage payment possible, then a 30-year fixed mortgage is probably your best bet. However, if your budget warrants it, selecting a 15-year or 20-year fixed is a smarter choice.
5. Now it’s time to get pre-approved
Make sure to get a couple of rate quotes before selecting your lender. According to the Consumer to the Consumer Financial Protection Bureau, this can save you over $3500 during the first 5 years of the loan. Make sure to discuss all the options with your lender and the possibility of buying points to lower your mortgage rate. The rule of thumb is that it makes economic sense to consider buying points if you plan to stay at least 6 years in your home.
6. It’s time to find the right agent to work with
A real estate agent is going to be your right hand throughout the process and represent you in the transaction. Make sure to select someone who is knowledgeable and has the time to help you. At Luevanos Real Estate, you will have a team each with their own field of expertise by your side throughout the whole process.
7. Choose the criteria you are looking for in your next home
Using the price you were pre-approved for, select what you are looking for in your next home. Your realtor will be able to gather your criteria (price, cities, bedrooms, bathrooms, square footage, etc.) and set you up on the MLS to receive all the homes that match. Remember to think about the future and whether you plan to have a family which might require more room or certain features in a home.
8. Review your MLS portal for homes you want to see
Once you activate your portal, you will instantly get a list off all the homes that match your criteria. You will also be sent alerts for new homes that hit the market as soon as they are active which is powerful. Most homes that are beautiful and offered at a great value get snatched up within a week, so it’s important to review new homes within a few days. You don’t want your dream home to slip away.
9. Go out with your realtor to see homes
Once you mark all the homes you want to see, your realtor will schedule a day to visit all the homes you requested. Often times, they will also add a couple of homes that they feel you will also consider. This is one of the best parts of the process so enjoy it!
10. Go to open houses
Make the most out of open houses and go to as many as you can. Mingle with the realtor or neighbors as they can have insight about the neighborhood you didn’t know about. Also, there may be a home that does not fit all the criteria you initially stated, that may be the dream home you wanted.
11. Make an offer
Once you found the home(s) that you really want, make sure to submit an offer as soon as you can with your realtor. Often, realtors review offers on Monday, after a weekend full of open houses. Consult with your realtor and see whether there is anything wrong with the home such as unpermitted rooms. Once you evaluate everything, it’s time to come up with a price and negotiate.
12. Accepting the offer
If there are multiple offers, the home may go above the original listing price. However, more often than not, the home will sell for less than it was listed. This is where you will work with your realtor to submit counteroffers until you find a price you are willing to pay for the home.
13. Take advantage of the home inspection
It’s not free but you should always get a home inspection. Don’t judge a book by its cover. Even with new construction, there can be wiring, plumbing, termite or foundation damage that can cost tens of thousands of dollars. This will give you absolute knowledge of what you are buying and if there are any issues, you can request repairs or utilize that to negotiate and get a better price.
14. Choose the right homeowners insurance
Before closing on your loan, your lender will require that you have homeowners insurance. Examine what coverage makes sense for you and get multiple rates. Floods are not covered in homeowners insurance so beware to buy a separate flood insurance policy if you are in an area prone to flooding. If you live in California, it’s a good idea to add earthquake insurance to your homeowner’s insurance
15. Celebrate!
Escrow is over. You just got the keys. Take it all in and celebrate. You worked towards this goal your whole life and you made it. Throw a housewarming party and don’t forget to invite your realtor, lender, and whoever else helped make this possible because they live for these moments.