FIRST TIME HOMEBUYER

What are the Benefits of Homeownership for First Time Homebuyers?

Homeownership brings many benefits. When you buy your first home, you’ll become part of a community and experience the security of owning the roof over your head.

As a homeowner, you may also be able to:

  • Take control: Avoid rent increases and cancelled leases while creating a home that meets your needs and tastes.
  • Build home equity: Grow your assets with the principal portion of your mortgage payments as your property value increases.
  • Get tax benefits: Deduct mortgage interest and real estate property taxes on your income tax returns. (Consult a tax advisor regarding the deductibility of interest.)
  • Build your credit: Create a strong credit history by making on-time mortgage payments.

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How can I get started as a First Time Homebuyer?

You can prepare to buy your first home by:

Creating a financial plan
  • Understand your credit needs and borrowing ability.
  • Know your credit history, assess your ability to make payments, and determine whether you can borrow using collateral such as the equity in your home.
  • Make a plan to get your credit in shape if necessary and establish a budget.
  • Check your credit history.
  • Compare your income and expenses
  • Total the amount of your savings and other down payment sources.
Estimating what you can spend
  • Calculate your monthly payment. Use our payment calculator to estimate payments for various mortgage amounts and interest rates.
  • The total amount you need is the sum of your down payment and your closing costs.
  • If you have less than 20%, you will need private mortgage insurance (PMI) which protects the lender if a borrower stops paying the mortgage.
  • Closing costs and prepaid expenses are also a necessary part of getting a mortgage.
Setting a time frame Determine when you’d like to buy your home. Take into consideration your credit, cash flow, and savings.

**Closing costs include the origination charge, discount points, out-of-pocket expenses, and prepaid items.

  • Origination charge – the amount that includes all charges (other than discount points) that all loan originators (lenders and brokers) involved will receive for originating the loan. This charge covers items including fees, document preparation, underwriting costs, and other expenses. If you qualify, you may be able to finance the origination charge as part of your mortgage amount.
  • Discount Points – which are calculated as a percent of your loan amount – are an option if you want to pay to reduce your interest rate. Discount points are charges paid to the lender voluntarily, usually at closing by the borrower or the seller. One point is equal to 1 percent of the loan amount.
  • Out-of-pocket expenses cover third-party services, such as fees for appraisals, attorneys, credit reports, deed recording, and tax services.
  • Prepaid items include homeowners insurance, private mortgage insurance, and deposits for establishing an escrow account.
    • Depending on the closing date, you may prepay some interest and pay property taxes at closing.
    • An escrow account is established by the lender to help you to save toward your property tax and homeowners insurance instead of paying the entire amount at once.

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How can I estimate what I might be able to borrow?

There are different ways to estimate a price range that’s appropriate for you.

  • A free mortgage  prequalification lets you estimate how much you can borrow, based on basic financial data you provide.
  • A preapproval letter tells sellers that you’ve been preapproved for a specific amount based on a preliminary review of your credit information.

A preapproval isn’t a commitment to lend. A commitment is contingent on checking application information, satisfying all underwriting requirements and conditions, and getting an acceptable property appraisal and title.

Verification of this information, satisfying underwriting conditions, plus a satisfactory title search and appraisal are required for final loan approval.

Remember: Neither a preapproval nor a prequalification obligates you to borrow from that specific lender.

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How can I find a home that meets my needs?

Darcy can help you find properties for sale that meet your needs. Keep the following elements in mind.

Preparation
  • Identify the features you want in a home with our homebuying wish list.
  • Set up free buyers’ consultation with Darcy Weber
Location
  • Remember that location is as important as appearance or size.
  • Think about your needs in terms of your home’s location. Do you need to be in a particular school district or close to a job?
  • Although no one can predict future property values, your real estate agent can help you learn about trends in your area over the years.
Needs and wants
  • Consider the features you want in a new home. For example:
    • How many bedrooms and baths do you need?
    • Do you need central heating or air conditioning?
  • Try to separate “wants” from “needs” and prioritize your list.
  • Think about ranking each item. Then look for a home with the most important features.
Types of homes
  • A single-family home is just one of your options.
  • Condominiums, town homes, and co-ops all offer different lifestyle and ownership features. Be sure to budget for monthly assessments that typically include garbage removal, landscaping, and more.
  • Consider newly built homes in addition to existing homes.

Sometimes finding your ideal home involves compromise. You may want to consider “a diamond in the rough” — a place you can transform with a bit of ingenuity or some renovations. Ask your mortgage broker about specific programs that fund purchase and repairs.

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What can I expect during the homebuying process?

Darcy Weber, REALTOR®, can help you through each stage of the homebuying process.

Have a preapproval for maximum leverage A preapproval tells real estate agents and home sellers that you have been preapproved for a specific mortgage amount. Real estate agents and sellers increasingly rely on preapprovals to identify serious offers.
Make an offer Working with Darcy, determine the appropriate amount for your initial offer based on comparable home sales, market value, condition of the home, and your closing date.
Put your offer in writing Handle all negotiations in writing to make sure both parties understand the terms of the agreement. If you do negotiate verbally, follow up in writing.
Submit a deposit This “good faith” deposit demonstrates commitment to the transaction.
Finalize your purchase contract
  • The contract is a legally binding contract between the buyer and seller describing all the terms of the transaction. Learn more about purchase contracts.
  • Depending on your state, an attorney, real estate agent, or title company may help negotiate and draft the contract.

10 Tips for First-Time Homebuyers

1. Be picky, but don’t be unrealistic. There is no perfect home.

2. Do your homework before you start looking. Decide specifically what features you want in a home and which are most important to you.

3. Get your finances in order. Review your credit report and be sure you have enough money to cover your downpayment and your closing costs

4. Don’t wait to get a loan. Talk to a lender and get prequalified for a mortgage before you start looking.

5. Don’t ask too many people for opinions. It will drive you crazy. Select one or two people to turn to if you feel you need a second opinion.

6. Decide when you could move. When is your lease up? Are you allowed to sublet? How tight is the rental market in your area?

7. Think long-term. Are you looking for a starter house with the idea of moving up in a few years or do you hope to stay in this home longer? This decision may dictate what type of home you’ll buy as well as type of mortgage terms that suit you best.

8. Don’t let yourself be house poor. If you max yourself out to buy the biggest home you can afford, you’ll have no money left for maintenance or decoration or to save money for other financial goals.

9. Don’t be naïve. Insist on a home inspection and if possible get a warranty from the seller to cover defects within one year.

10. Get help. Consider hiring a REALTOR® as a buyer’s representative. Unlike a listing agent, whose first duty is to the seller, a buyer’s representative is working only for you. And often, buyer’s reps are paid out of the seller’s commission payment.

www.REALTOR.org/realtormagReprinted from REALTOR® Magazine Online by permission of the NATIONAL ASSOCIATION OF REALTORS® . Copyright 2004. All rights reserved.