First-Time Home Buyer s Guide Buying a home for the first time can be a daunting task. It's an enormous purchase, possibly the largest one you'll make. Touring homes can be fun, but navigating the financial process can be difficult and confusing. This guide was specifically designed to easily explain the process for first-time homebuyers.
Start by Hiring Your Real Estate Agent Geffrey Geff Gardner As a first-time homebuyer, you will especially benefit from Geffrey, a highly-trained first time home buyer expert who will be your guide through the process of finding and placing an offer on a home that meets both your needs and your budget. He will also take you through the steps and inspections leading up to closing and attend closing as your advocate. Geffrey Gardner First Time Home Buyer Expert Weichert Realtors 201-320-2179 ggardner@weichert.com www.cedargroveproperties.com
The True Cost of Owning a Home The monthly cost of owning a home involves so much more than just a mortgage payment, which can come as a surprise to many first time homebuyers. Having a mortgage will make one monthly payment steady, unlike rent, which can be raised every year. Taxes, utilities, homeowner's association fees, and insurance are additional costs that will likely increase every year. Maintenance is another added expense over renting, when a call the landlord solved most issues without additional expense. Determine How Much You can Afford The amount you can borrow will depend on many factors: your income, the size of your down payment, your credit history, your current debt and the lender. Some experts suggest that your total monthly debt should not be greater than 36% of your after-tax monthly income and your mortgage payment should not be more than 28%. Another suggestion is to look for a home that costs about 2.5 times the amount of your after-tax salary.
Obtaining Mortgage Pre-Approval Mortgage pre-approval occurs when a lender like Weichert Financial Services has assessed your financial history and decided that you are an acceptable applicant for a mortgage. It is not a contract or an agreement for a loan, but shows that you will probably be able to secure financing once you find a home. It demonstrates to sellers that you are serious about purchasing a house. For a first-time buyer, it also helps you understand your financial picture and focus your house hunt within a range that you can afford.
Find a Down payment Finding a down payment is usually one of the hardest things for a first-time homebuyer. Conventional wisdom says that buyers need at least 20%, but this isn't always true. According to the National Association of Realtors, the median price for a single family home sold in January, 2017 was $237,700, which would result in a down payment of $47,540. To most people, that's a significant amount of money to save in addition to paying everyday expenses. Most lending institutions understand that this isn't always feasible. It is possible to secure a mortgage if you have less than 20% for a down payment, but it will require some additional steps. One common option is to pay Private Mortgage Insurance (PMI) until you reach a certain threshold of equity. A lower down payment does have a drawback though; it is also possible that it will result in a higher interest rate because the lender will deem the loan to be higher risk.
Other sources for a down payment Set up a savings plan Some employers will allow you to deposit part of your check directly into a savings account. FHA loans FHA loans only require a 3% down payment. Veterans programs Veterans, active duty personnel and certain members of the National Guard can contact the U.S. Department of Veterans Affairs about zero-down payment housing loans. A gift or loan Ask a relative or friend for help, but be sure to create clear documentation including any repayment terms. Withdraw from an IRA First-time homebuyers can withdraw up to $10,000 without being subject to the 10% additional early distribution tax. Borrow from a 401K Some employees can borrow up to 50% of their 401K, up to a maximum of $50,000. It is required to be paid back within 5 years, although the repayment schedule can be extended if it is going to be used for the down payment on a home. Check the terms of your plan. One common mistake made by first-time homebuyers is to spend all of their money to buy their new home and leave themselves without a safety net. As a homeowner, you re responsible for all of the repairs in the home, and that's in addition to your regular expenses like maintaining a car or paying off school loans. Unless you're able to immediately secure a home equity line of credit (HELOC), you'll need to have a reserve to help with unexpected problems.
Should You Buy a "Starter House? Some first-time homebuyers wonder if they should buy a starter home to begin to build equity or move into a home that will suit their needs both now and in the future. A starter home is defined as a home that will meet the needs of the buyer for at least 5 years. Some consider it a smaller home or a condo, not necessarily one in need of a lot of repairs. In 5 years, the home can be sold to move to a larger home that might accommodate an expanding family. A starter home may be something you can afford now. It's a way to save and build equity instead of paying rent while waiting to afford your dream home. If you choose to purchase a starter home, be careful to find something that is more likely to appreciate. The hope is that in several years, you'll sell it for more than you paid, recoup your investment and use the equity as a down payment on a larger home. The downside is that it might not be possible to sell the home and it might represent a loss or an inability to move. While there is no magic formula to make sure a home will appreciate, there are some factors that play a bigger role in resale than others. Location is the biggest factor, with homes near parks, open spaces, public transportation, good schools and in low crime areas considered to be more valuable. Maintaining the property will go a long way; curb appeal is important to buyers. Remember, it's not possible to predict when and where home prices will rise or drop.
Start Your Home Search Understanding what you want and need in a home can make your search easier. Some features are permanent, like location or size of the property. Other features, like number of bathrooms, are possible to change but more difficult. Most other features of a home can be modified, given the right skills or funds. First-time homebuyers should also weigh the pros and cons of new construction versus existing homes as well as the types of homes and neighborhoods. Once you start looking at homes, you ll need to pay attention to more than the décor or landscaping. For example, there are specific signs that may indicate problems, like sticky doors and windows, pooling water or odors. A survey will also help you understand the property better.
Make an Offer Once you ve found a home you like, you ll work with Geffrey to make an offer. He will help you decide how much to offer based on comparable properties in the area and other factors, such as your situation, the seller s situation, the condition of the home, and the market conditions. He will have a standard contract that you will fill out with all of the details, including contingencies, down payment amount and pre-approval information. It may be as simple as sending the paperwork over and having it accepted or it may be a complicated process of back and forth negotiations. Handling these negotiations in a fair and honest way will help ensure a successful outcome.
Secure Financing After you ve found a home, made an offer and it s been accepted, you can go back to the lender that pre-approved you and apply for a mortgage. Whether or not you choose to work with Weichert Financial Services, be sure to ask questions about the different types of mortgage products and decide which one fits your needs. Closing Closing is the final part of the process, but it consists of several steps. One of the most important is the home inspection. A licensed expert will inspect the entire home, looking for problems and defects. This is especially important for first-time homebuyers. Most offers will have a contingency based on the home inspection so that if the inspector finds anything significant, the deal can either be renegotiated or cancelled. An appraisal will also be ordered by the lending institution, confirming that the offer price is in line with the home s value. If it is not, they may not grant financing. At the closing, after the inspection and appraisal are complete and have been accepted by all parties involved, it s time for the home to change hands. Closing costs will vary, depending on the needs of the transaction. They generally include lawyer fees, a credit report, a loan origination fee, a home inspection fee, appraisal fee, plus title search and insurance. You will also have to show proof of homeowner s insurance at closing. The actual closing will involve the signing of many documents and the transfer of funds. In the end, you ll have the keys to your new home.
Be Patient Buying a home is not easy and will require more paperwork, checks and double checks, professionals, inspections and decisions than most firsttimers could ever imagine. It can be complicated and frustrating at times. Since emotions can run high and influence decisions, the best thing to do is try to stay calm and focused. Given the complexity of a real estate transaction, allowing either excitement or anger to cloud judgment can end in a less than ideal choice with long-term consequences. When frustration or confusion takes over, it is a good time to rely on your Weichert Sales Associate for guidance and advice. He or she has the experience to explain what is happening and why. Expecting the unexpected will allow you to account for the additional time to solve problems. Being patient will ensure that the home you purchase is the right one!
About Geffrey Geffrey Gardner resides in Cedar Grove and is a lifelong resident of Northern New Jersey. He is a member of the National Association of Realtors, the New Jersey Association of Realtors, the Passaic County Board of Realtors, the Garden State MLS and NJMLS. He completed his Real Estate education at the American School of Business, and is a graduate of Weichert s Fast Track Academy. Prior to becoming a Realtor, Geffrey earned his BBA in Marketing from Pace University and spent over a decade in a successful Sales & Marketing career. Along with his wife Jennifer and twin sons Hudson and Harrison, Geffrey is very active in the Cedar Grove community. He s an avid NY Red Bulls soccer fan, a casual kickball player, and a dog lover. Call Geffrey today at 201-320-2179 to start your home search.