A Guide to Buying Your First Home
Depending on the location of a home, this guide provides information on the process of homebuying for the first time home buyer.
If you’re thinking about purchasing your first home, congratulations! Buying your first home can be an exciting and stressful experience, and owning your own home can be rewarding. To make the process as easy as possible, consider following this first time home buyer’s guide to help you successfully purchase your first home.
Before you start looking for your first home
The process of buying a home is often overwhelming for first-time homebuyers.
The biggest “lie”in the industry is that Real Estate Agents who work Part Time at their job can service their customers. A Real Estate Agent who works Full Time at their job will be available to you at all times. Moreover, the Agent should be a member of the National Real Estate Association, (NAR). Members must comply with NAR’s strict Code of Ethics.
This first-time home buyer’s guide provides a basic overview on how buying a home works and helps first-time buyers know what to expect when it comes time to purchase their own homes. To help potential homeowners better understand what buying a home entails, this outline is about purchasing property and provide advice on how you can begin your search with confidence.
How much should I be saving?
Emphasize on saving for the down payment. Following are some ways that first time buyers can save for a down payment. Turn in your leased/payment vehicle for a less expensive vehicle. Get a second job or a lawful side hustle, don’t eat out, get yourself into the mindset of “would I rather have a house in 12 months or a designer handbag or a new vehicle now?” Choose the house!
If you have debt you need to pay off your debt.
Income Debt Ratios:
What is a debt-to-income ratio? Why is the 33% debt-to-income ratio important?
Your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income. This number is one way lenders measure your ability to manage the monthly payments to repay the money you plan to borrow.
To calculate your debt-to-income ratio, you add up all your monthly debt payments and divide them by your gross monthly income. Your gross monthly income is generally the amount of money you have earned. Evidence from studies of mortgage loans suggest that borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments.
Understanding Mortgage Basics
Mortgage Basics are crucial for first time home buyers because it is a financial decision that could change your life drastically. Most real estate buyers have heard that they need to pre-qualify or be pre-approved for a mortgage if they’re looking to buy a property. These are two key steps in the mortgage application process. Some people use the terms interchangeably, but there are important differences that every homebuyer should understand.
Pre-qualifying is just the first step. It gives you an idea of how large a loan you’ll likely qualify for. Pre-approval is the second step, a conditional commitment to actually grant you the mortgage.
The best time for first-time homebuyers may also depend on their financial status. Be sure your FICO credit score is at least 700+. The Fair Credit Reporting Act now allows a consumer to get their credit score/report for free annually. Free Annual Credit Report.
The Fair Credit Reporting Act (FCRA) requires the three national credit bureaus (Equifax, Experian and TransUnion) provide a consumer with a free copy of his/her credit report, upon request, once in a twelve month period. Take advantage of this and take the time to correct any inaccuracies on your credit report. http://consumer.ftc.gov
What can I afford?
Work with a Mortgage Broker or a Bank to obtain the various types of loans, rates, and the term of the Mortgage you want to receive. Do not shop for interest rates by calling five lenders because they will pull your credit and then you will have to obtain a letter stating that you did not receive a loan from those banks.
A Mortgage Broker can have access to many lenders and should provide you with the interest rate as well as the various terms of loans available. Ask the Mortgage Broker to explain in detail the various loans that are available to you and associated costs and points.
Talk to a Certified Public Accountant who can explain what you can deduct on your tax return. Basic tax deductions currently are the interest that you pay on your loan every year and property taxes. Tax laws change on an annual basis so be sure to understand what is an allowable deduction.
Many cities, counties and states have a program in place for first time home buyers. This can be everything from income tax credits, loans or grants from local governments.
The U.S Department of Housing and Urban Development (HUD) also has some incentive programs available for first time home buyers. A good way to find out about these programs is through your real estate agent.
Housing and Urban Development will grant/gift to a first time home buyer to be used for the down payment and closing costs. HUD requires that first time home buyers take a class and will help you in fully understanding utilizing their resources and the process of purchasing your first home. https://www.hud.gov/topics/buying_a_home
Your agent should provide you with a disclosure statement from the seller before you make an offer on the home. This will include; a home inspection and other necessary items you need to know about like traffic noise, the school district, and any improvements that have been done to the property and if a permit was issued by the city for improvements, this is especially important with respect to electrical and water.
An Appraisal will be prepared by a licensed appraiser. The appraisal will be prepared by comparing three other homes that have sold in the area and appropriate adjustments made as to the condition of the comparables, the upgrades, and like properties. Single Family Residences can not be compared to Townhomes or commercial properties.
Loan-to-value ratio (LTV), is a commonly utilized term in real estate. But what is the meaning of LTV exactly, and how does your loan-to-value ratio impact the mortgage lending process?
The short answer is that loan-to-value ratio is a figure that’s frequently used by lenders as one way to assess any risks that might be inherent to lending to you.
Your loan-to-value ratio is a figure (expressed in the form of a percentage) that measures the appraised value of a home that you want to buy against the loan amount that you’re seeking to borrow. It’s commonly used in real estate transactions by lenders to determine your eligibility for a loan. Having a low LTV can therefore improve the odds that you’ll be able to obtain a competitive home mortgage.
Escrow will be opened at a title company
The title serves two main functions in the real estate transaction. A title company manages the numbers, works up the settlement statement, and disburses the funds from the escrow account at the closing of your purchase.
The title company first is to act as a neutral third party in the transaction of the purchase of your home and is that of facilitator for the closing. Performing a title search and issuing a title insurance policy is a title company’s second function. If you are in contract for a house and have questions, be sure to call your escrow officer. The title company also holds your deposit for the home and provides you with a settlement statement that should be explained to you in detail before closing.
Also, when you borrow money, the lender requires that you buy a lender’s title insurance policy. From Rocket Mortgage: “Title insurance is a type of insurance policy meant to protect home buyers, as well as lenders, from any damages or losses caused by a bad title. Most title insurance policies cover all the common claims filed against a title, including outstanding liens, back taxes and conflicting wills.”
Before issuing this insurance, a title company will ensure that the seller has the legal right to transfer the title to you, and that the property isn’t subject to any tax liens, special assessments, or mechanic’s liens. Then, they will issue the lender’s title insurance policy which covers the lender in the event of future claims against the property, for the life of the loan. Although you pay for it, the lender is the only party to benefit from the insurance should there be a claim.
Title companies also issue owner’s title insurance policies, which, as the name implies, covers the new homeowner’s interests for as long as they own the property. While this policy isn’t mandatory, “The majority of people do tend to buy it because it protects the home purchase, which is usually your largest bank transaction,” says Gerry Glombicki, director of insurance at Fitch Ratings.
Both lender and owner’s policies are one-time expenses, rolled into the closing costs. The cost of the lender’s policy is based on the amount borrowed, whereas the cost of the owner’s policy is based on the home’s value.
Close of Escrow
Congratulations the close of escrow represents that you are now given the keys to your first home! You will sign all applicable documents, provided with the final settlement statement. When an Escrow is officially “closed”, it means that is the day that the Grant Deed is recorded at the County Recorder’s office, and is officially public record. Your Full Time Realtor Agent should be there at the signing and be the one who hands you the keys!
Property Taxes are based on the purchase price of your home. The percentage rate is determined by the County in which your home is located. For example if you purchase a home for $300,000.00 and the tax rate is 1% your annual property taxes would be $3,000.00. You can pay these taxes in two installments. An easy acronym to remember when your taxes are due is, N.D.F.A. which means No Darn Fooling Around. The first installment is due in November and late in December, your second installment is due in February and late in April.
Tips from someone who bought their first home in 2005
When you’re a first-time homebuyer, you might feel overwhelmed. I called several Realtors and interviewed them,the more Agents I called the more I learned.. I eventually worked with a Full Time Agent who understood what I would need to do as a first-time buyer. Remember that buyers agents represent their clients’ interests exclusively. Unlike dual agency who represents both buyer and seller, although there are some advantages to dual agency representation.
I obtained my credit report to make sure there wasn’t anything on it that would affect my FICO score. Incidentally, there was a collection agency that represented a Dentist that I had not paid.
I negotiated with the dentist if I paid the bill which I was unaware of, he would request the collection be taken off my credit report and I asked for this in a letter.
I saved by packing my lunch for work, purchasing my clothes at consignment shops, and didn’t buy anything extra. I had a side job selling high purity metals. Disclaimer: This is a story that will probably make the most sense to car guys. Others will not find it believable, but it is true nonetheless. I sold my beloved blue 2003 4WD Jeep Laredo and drove a 1985 gold toyota tercel – hey! it wasn’t sexy but it turned over every time and I could push it up to 70 mph. I didn’t have a car payment and everyone got out of my way on the road. I could still go to the beach! It was my soulmate and my ticket to home ownership.
I was pre-approved by a reputable Mortgage loan broker before I began to search for homes.
After a nine month search I found a home. My offer was accepted and we closed escrow in 30 days.
My Income and credit profile was checked once again to ensure that nothing had changed since the initial approval, so this wasn’t the time for me to go out and finance a large furniture purchase or shop for a vehicle. I also held a house party and asked family members and friends to bring their spare change so that I could pay the property taxes.
First-time home buyer’s guide: If you are a first-time homebuyer it is still very important that you find an Agent who works full time, do your homework so that you can find exactly what you are looking for in a home. A couple of quick tips when preparing yourself as a first-time homebuyer: Keep your housing costs reasonable by spending no more than 30% to 43% of your take-home pay on housing expenses. Be patient with yourself, and allow yourself ample time (at least 12 months) before buying a house. Everything is negotiable!
If you have additional information, me and my audience would love to hear about it. Tell us about it in the reply.
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