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.
The good news? There is a tried-and-true formula, involving multiple good financial steps and habits, that can lead you directly to the purchase of your dream home, and on a fast schedule, too. The downside is simple and direct -- if you don't follow the home buying formula, your chances of landing a new home are significantly reduced, if not completely eliminated.
First-time home buyers are frequently surprised by high repair and renovation costs. Buyers can make two mistakes: First, they get a repair estimate from just one contractor, and the estimate is unrealistically low. Second, their perspective is distorted by reality TV shows that make renovations look faster, cheaper and easier than they are in the real world.
Your agent will send listings to your cellphone. You'll also pick up House For Sale magazines and read classified ads in your local newspapers. You'll probably spend an inordinate amount of time surfing the Internet for homes. You might even plan afternoon drives to preview neighborhoods. Those are all excellent ways to see what's available. Here are some tools to help you narrow your home buying search.
Paranoid buys are sometimes difficult to work with. They may not believe the price is an accurate assessment of the house's market value. They'll submit low-ball offers and then show frustration when they are consistently rejected. Paranoid buyers don't trust real-estate agents, and may even try to buy their home without an agent, which is generally an unwise choice.
Property tax is the amount of money that you are required to pay based on the property’s assessed value. Property tax can be very costly, depending on where you live. This is something you’ll want to consider when calculating how much you plan on spending on your overall homeownership expenses. Property tax payments are usually due annually, but more often than not, they are divided into and included in your monthly escrow payment.
Mortgage insurance: If you take out a conventional loan and put down less than 20%, it’s possible you’ll have to pay private mortgage insurance, which protects the lender financially. You can typically request for PMI to be canceled once you reach 20% equity in your home. If you take out an FHA loan, you have to pay mortgage insurance, though you may be able to cancel your insurance once you pay down enough of your loan.
When you find the home you want—and you will—it’s time to make an offer. Talk to your agent about the right price to offer; it's common to make the first offer below the listed price, but in a very competitive market, you may need to offer the asking price or even more. Your real estate agent can help you gauge this, and often can get the scoop on how much competition there is for a certain home.
Note that if our home buyers had saved $60,000 for the down payment, their monthly bill would drop to some $1,600, eliminating the need for mortgage insurance. But in our model, mortgage insurance accounts for just $1,356 annually over 6.5 years in the $60,000-down-payment case -- or $8,800 total. Turns out that's a lot less than saving the additional $30,000 to hit the 20% down-payment mark. And so, if savings are an issue, first-time buyers might take on the insurance in exchange for a lower down payment.
As long as you have lived in your home for two of the past five years, you can exclude up to $250,000 for an individual or $500,000 for a married couple of profit from capital gains. You do not have to buy a replacement home or move up. There is no age restriction, and the "over-55" rule does not apply. You can exclude the above thresholds from taxes every 24 months, which means you could sell every two years and pocket your profit—subject to limitation—free from taxation.
Many home shoppers use a lender who was recommended by a friend, family member or real estate agent, and they don’t bother shopping around. But that doesn’t guarantee you’ll get the best rate, or even get a lender who is experienced with loans for your particular situation. The CFPB recommends talking to at least three lenders to get the best loan for you.
Even for the millennial generation, which has been slower to become a major part of the homeowner pool than previous generations, buying a house remains a key goal in life. In a study released earlier this year on expectations for aging, skilled nursing and assisted living company Aperion Care surveyed 2,000 millennials, of which 85 percent say they expect to own a home in their lifetime.
The fastest-growing metro area in Arkansas takes the No. 5 spot. Residents spend 25.47 percent of the blended annual household income on a mortgage or rent and utilities. Also coming in the overall Best Places to Live list at No. 5, Fayetteville is seeing significant population growth, plus a short commute time and low crime rate contribute to its appeal among the 100 largest metro areas in the U.S.
Like any other loan, a cosigner on a mortgage means that the person is binding himself to be legally obligated to make the debt payments should you default. So, if you have your mom cosign on your mortgage and you default, she’s on the hook legally and will have to make payments. Similarly, if she wants to get off your mortgage, she can’t do so without you refinancing. If a cosigner is required, the lender is effectively saying that your financial history isn’t good enough and they want someone else to be on the hook, too.
I believe some of the best advice is to PREPARE! I hear so many people say “Ok, we wanna buy a house now” and it’s like…WOAH WOAH WOAH…you can’t just go out & get one! There’s several things that need to happen beforehand. Unfortunately, money management is not a strong point for many of us young folks, but I’m getting better at it (and helping my husband do the same!). Thank you! 🙂
Most home sale contracts give the buyer about 10 days to complete a home inspection. If you’re getting a mortgage to buy the house, your lender will likely require you to use a certified home inspector. (Even if you’re not required to get a home inspection, it’s best to get one anyway to make sure you’re not buying a house full of expensive problems.)
FHA Loans – FHA loans are the most popular type of home loan used by first-time homebuyers. This is because they are easier to qualify for and have a low 3.5% down payment. FHA home loans allow for higher DTI ratios making it easier to qualify for a home loan with low income. They also have the lowest credit score requirement of any mortgage, you need just a 580 credit score with 3.5% down.
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.
Owing to the high costs, property purchase often remains once-in-a-lifetime activity for many individuals. It may seem like the closing process is a lot of complex work, it is worth the time and effort to get things right instead of hurrying up and signing a deal that you don’t understand. Be wary of the pressure created to close the deal fast by the involved agents and entities who are there to help you for their cut, but may not be really responsible for the problems you may face in the long run from a bad deal.
First-time homebuyers are often moving from rentals that use less energy (gas, oil, electric, propane, etc.) and water than a larger new home will. It is easy to be ambushed by soaring rates when your new house has ceilings higher than your rental – or older windows that leak air. Then there are unexpected utilities, such as buying gas to power a lawnmower. These costs can blow a budget.
Before a person begins the process of buying a house he or she will need to know what they can afford. Typically this comes down to how much of a loan he or she can obtain. One route to take is to get pre-qualified. The pre-qualification process is one in which a mortgage company interviews the home buyer and asks questions about the individuals finances, including debts. An estimate of how much the buyer can afford is given at the end of the interview.
As you save money for your down payment, avoid the temptation to invest in the volatile stock market with money you hope to use in the next year or two. While you might be tempted to try to earn a greater return on your money than an online saving account paying one percent, the greatest risk is not having your money available when you’re ready to buy a house.