You can find for-sale properties through listing websites, local publications and your real estate agent. Start touring homes to develop a sense of what you want and don’t want in your home, as well as what type of inventory is available in your desired neighborhood. Once you find a property that meets your needs, work with your agent to negotiate a fair price with the seller.
Unicorns do not exist in real estate, and finding a perfect property is like finding a needle in a haystack. Looking for perfection can narrow your choices too much, and you might pass over solid contenders in the hopes that something better will come along. But this type of thinking can sabotage your search, says James D’Astice, a real estate agent with Compass in Chicago.
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When you’ve found a local lender, you’ll have to submit your financial information to get pre-approved, including tax forms and W-2s, recent pay stubs, savings, retirement accounts, and debt obligations. After reviewing all of this information, the lender will let you know the size mortgage for which you can qualify and provide a letter that shows you’re pre-qualified. In the meantime, keep track of all those financial forms and add new pay stubs and bank statements to the file, as you’ll need them again. That pre-approval letter usually expires after 60 or 90 days, so if you haven’t found your home before it expires, you’ll just have to resubmit the paperwork.
How to avoid this mistake: If making a minimal down payment is an accomplishment, the choice is simple: Don’t buy discount points. If you have enough cash on hand, the value of buying points depends on whether you plan to live in the home longer than the “break-even period.” That’s the time it takes for the upfront cost to be exceeded by the monthly savings you get from a lower interest rate.
That’s why Recchia suggests keeping your risk tolerance in mind. “If you find great security in owning your house, save more money for a large down payment and find a loan that works for you. The higher the down payment, the less in debt you will be; the less debt, the better you will be able to weather economic storms and still own your house,” she says.
Your property taxes are a fixed percentage of your home’s value based on the tax assessor’s appraised value of your home. Property taxes are paid to township or county in which the home is located. You will pay this tax annually, semiannually or as part of your monthly mortgage payments (the tax portion of the payment will go into your escrow account). The local tax assessor’s office can provide you with a specific property tax rate.
IRS Publication 530 contains tax information for first-time home buyers. Real estate property taxes paid for a first home and a vacation home are fully deductible for income tax purposes. In California, the passage of Proposition 13 in 1978 established the amount of assessed value after property changes hands and limited property tax increases to 2 percent per year or the rate of inflation, whichever is less.
Next, consider how long the home has been on the market, and how incentivized the homeowner is to sell. For example, if the seller is living in a transition home while waiting to sell, you may have a better chance of getting the seller to accept a discounted offer. But if he's casually putting the home on the market to see how much he can net, the seller may be more apt to wait for the perfect price.
The spender in me knows that’s easier said than done. When my husband, Winston, and I moved into our first home, I had so many visions for what our home could look like! It was hard for me to accept the fact that I could only decorate one room at a time, but I knew our future money goals were more important than me spending all our savings at the furniture and home stores.
This person will be your lifeline through the process. Not so long ago, people didn’t have much to go on when selecting an agent. A postcard in the mail or a name on a sign might have been all you had to consider if you didn’t have a personal referral. But now it’s a breeze to check reviews online. Go ahead and meet with a few agents and ask some questions. Your agent is your chief advocate, confidante and hand-holder in the process so you want to find a good fit.
Home inspection, a physical examination of the condition of a real estate property, is a necessary step to not only know about any problems with the property, but also get a look and feel of the surroundings. If you find a serious problem with the home during the inspection, you'll have an opportunity to back out of the deal or ask the seller to fix it or pay for you to have it fixed (as long as your purchase offer included a home-inspection contingency).
A lot can be up for negotiation in the homebuying process, which can result in major savings. Are there any major repairs you can get the seller to cover, either by fully handling them or by giving you a credit adjustment at closing? Is the seller willing to pay for any of the closing costs? If you’re in a buyer's market, you may find the seller will bargain with you to get the house off the market.
If you want the smallest mortgage payment possible, opt for a 30-year fixed mortgage. But if you can afford larger monthly payments, you can get a lower interest rate with a 20-year or 15-year fixed loan. Use our calculator to determine whether a 15-year or 30-year fixed mortgage is a better fit for you. Or you may prefer an adjustable-rate mortgage, which is riskier but guarantees a low interest rate for the first few years of your mortgage.
Previously, she served as a researcher of commercial real estate transactions and information, and is currently a member of the National Association of Real Estate Editors. Thorsby studied Political Science at the University of Michigan, where she also served as a news reporter and editor for the student newspaper The Michigan Daily. Follow her on Twitter or write to her at [email protected]
As a first-time home buyer, you’re probably accustomed to the monthly cost of renting, which usually includes your rent payment, some of the utilities, and your internet and cable bills. As a homeowner, you’ll be responsible for additional monthly costs that may have been covered by your landlord. That includes things like water, sewer and garbage bills, monthly HOAs (if you’re buying a condo) and the cost of lawn care. You’ll also be responsible for paying property taxes and homeowners insurance. And don’t forget the cost of maintenance. It’s recommended that you set aside 1-3 percent of the purchase price of the home annually to cover repairs and maintenance.
Even when your purchase offer has already been accepted, if inspections reveal any problems, you may want to renegotiate the home's purchase price to reflect the cost of any repairs you will need to make. You could also keep the purchase price the same but try to get the seller to pay for repairs. Though you may not have much scope to demand for repairs or a price reduction in case you're purchasing the property "as is," there is no harm in asking. You can also still back out without penalty if a major problem is found that the seller can't or won't fix it.
Paperwork forms the most critical steps of closing a property deal. Despite there being a heap of papers filled with complex legal terms and jargon, it is highly recommended to read it yourself. In case you don’t understand certain terms or portions, one can look up for explanation on the Internet or consult a real estate attorney. Although you may feel pressured by the people who are waiting for you to sign your papers - like the notary or the mortgage lender - read each page carefully as the fine print will have a major impact on your finances and your life for years to come. In particular, make sure the interest rate is correct and all other agreed terms, like no prepayment penalty, is clearly mentioned. More generally, compare your closing costs to the good faith estimate you were given at the beginning of the process and throw a fit about any fees that may appear off.
In a perfect world, I would love to get a 15 year fixed rate mortgage using a conventional loan where I put down 20% (avoiding PMI altogether) in a great neighborhood close to the city (but not too close) with a white picket fence, red door, and black shutters with a boatload of money in the bank to go with it. But here I am, writing about the process and not buying any homes – I’m just trying to pay off my student loans.
McDonald recommends working with a local lender rather than an online or non-local lender, even if the online lender is offering a better rate. "Working with a local lender that's knowledgeable of the local market ensures you a smooth transaction right through to closing," he says. "Local lenders are typically also more readily available to their clients, and many local lenders will match the rates their competitors are offering."
As well, with student-loan debts high (and, per a recent Federal Reserve study, a deterrent to buying a home), it may be valuable to some first-time buyers that Fannie Mae will back loans to borrowers with debt-to-income levels of as high as 50%. This can mean that first-time homebuyers whose future potential income prospects are good may be able to get home sooner.