First Time Homebuyer: All You Need to Know

Dealing with sellers, real estate agents, inspectors and banks can all feel very frustrating, when all you are trying to do is find and purchase the best home for you and your family. The process of buying a home can be broken down into smaller steps, although quite a few of them. If the home-buying experience has you feeling overwhelmed, start with these steps.

Loan Application Process

It’s important to focus on the process of obtaining a mortgage before actually shopping for a home. If you haven’t been pre-approved for a loan, many realtors won’t even show you homes. If they do, and you find the perfect home, you may miss out on it while you’re waiting for preapproval and another buyer already has one.

• Saving for a Down Payment
  The “golden number” for a down payment on a home is 20 percent. This used to be the standard, and, if you weren’t able to come up with 20 percent of the home’s value up front, it usually meant you would be denied a mortgage. However, there are many newer types of mortgage that allow for as low as 3 percent down. Some of these may require proof of low income or disability. Be sure to talk to your loan specialist to see if you qualify for one of these low-down-payment loans.
• How Much You Can Afford
  A bank will take your income and expenses into consideration when determining how many homes you can afford. They will use those calculations to preapprove you for a certain amount. The bank may feel comfortable lending you $300,000, but you may not. If the payment on a $250,000 mortgage would be much easier for you to afford, then that’s the budget you need to stick to.
• Comparing Rates
  Every mortgage lender will offer different interest rates. You’ll want to look at several banks. It’s important not only to look at the APR (annual percentage rate). You’ll also want to look at closing cost rates and whether or not you can roll the closing costs into the mortgage, if that’s something you’d like to do. Even through one lender, there are often multiple types of mortgages available, so compare rates for all loans you qualify for.
• Preapproval Letter
  Once you’ve chosen your bank, the size of loan you need and the type of loan, you can apply for and receive your preapproval letter. This letter will help you open doors to the houses on the market – both sellers and real estate agents now know you have buying power.

House Shopping

With your pre-approval letter in hand, now comes the fun part. Well, usually. Shopping for the right home can take time. It’s important not to jump into the first home you look at. Plus, you need to stick to the rules you’ve set for yourself in picking your new home.

• • Type of House You Need
    If anyone in the family has a mobility problem, a two-story home may not be ideal. If you have young children and may have more in the near future, you want to know you have room available for your projected family’s growth and won’t need to trade up to a bigger house in a few years. On the other hand, if your kids are in high school, soon to be college students, you may not have to plan for more room. Make a list of features you need in your home and stick to it.
  • The Right Neighborhood
    The neighborhood in which you want to live is important. If you have young kids, being near great schools and parks may be on your shopping list when choosing the right neighborhood. You may also want to stick near the same area where you are currently living so kids don’t have to switch schools or leave their friends. With older kids, you’ll want to be closer to high schools, colleges and places that would be ideal for them to get their first job. Once you’ve narrowed your search to a specific neighborhood, be persistent.
  • Stick to Your Budget
    Whether you’ve decided to max out the mortgage amount you were preapproved for or you want to stay under it, give yourself a number and steel your resolve. Real estate agents may want to have you look at homes that are above your budget. Sometimes, but not always, these homes can be purchased with a much lower offer. However, if you spend your time in an offer war with a seller, you may actually be missing out on a home within your budget that meets all your new-home criteria.

Making the Offer

Purchasing the home you’ve chosen doesn’t mean submitting an offer, they approve it, you all sign papers and you get the keys. While some home purchases can be that simple, the majority of them aren’t. Let’s look at things you should consider when sitting down at the table to submit an offer on a home.

• Contract Contingencies
  When placing the offer on a home, you’ll want to add in contingencies that can allow you to back out of the sale under certain circumstances. The most common contingencies involve appraisals and inspections. After you submit the offer, the seller knows you are a serious buyer. Now, you have the option to have the house appraised and inspected by objective third parties. If the appraisal comes in at much lower than you’ve offered, you will be able to revise your offered price – as long as you’ve already added this contingency. With an inspection contingency, you’ll also be able to back out of the offer or request the seller make repairs, if the home isn’t in ideal condition or they’ve misrepresented the condition of the property.
• Comparison Shopping
  It’s important to look at how much comparable homes in the neighborhood are being sold or listed for. If they are selling for much less, you may be able to offer a lesser amount for the home you wish to purchase, unless there are other aspects of this house that make it more valuable.
• Budget for After-Signing Costs
  You will most likely have to pay closing costs out of pocket. Some lenders will allow you to finance the closing costs into the mortgage, but this should be discussed before you accept the right home loan for your needs. You may also need to make repairs or upgrades to the home before moving in. Moving costs may include hiring a moving company or renting a truck and helpers. If you max out your budget on buying the home, you may struggle to pay for these things once the home is yours.
• Homeowners Insurance
  It’s important to choose the right homeowners insurance for your new home. It should be protected in case of severe weather your area is prone to, accidental damage, fire and more. The insurance should be enough to cover the cost of the home’s value as well as the contents of your home. Your homeowners’ insurance and property taxes are usually incorporated into your mortgage payment and are paid through an escrow service.

Ready to Own Your Own Home?

You now know the basics of buying your first home, from saving for the down payment to making sure that home is well protected with proper homeowners insurance. Are you ready to talk to a mortgage lender to start the process of getting into your very own home? Galaxy Lending Group can offer you competitive options for your first home loan and help you through the home-buying process. Contact us to get started today!