Information for First Time Home Buyers
Choosing a Community
If you are buying a home, one of the first things your real estate professional will do before taking you on home tours is interview you to determine the type of house you want (i.e. "2,000-square-foot four-bedroom, split-level with a formal dining room and two-car garage"). But just as important is the type of community in which you want to live. Knowing what your requirements are will help narrow your home search and save time.
To expedite the house-hunting process, start by making a list of the dream home factors that are most important to you and your family's lifestyle. Consider style, location, proximity to work and schools, yard size, children in the community, and of course, price. Price and location are generally the key factors you'll use to identify the communities that best suit you. If you are moving within the same city, you may want to start your community search by getting in your car and exploring. There are also resources on the Internet that let you compare communities.
You'll want to ask yourself critical questions. Do you dream of something quaint and charming that can only be found in an older area? Or, do you prefer everything new? Are you willing to sacrifice size and space for architectural detailing? What about drive and commute time to the office and schools? Will you forgo the number of bedrooms and a big yard for proximity to a lake or other recreational areas?
Whether you have children or not, buying a home in a community with good schools is important. It not only adds value to your property, but also is an attractive feature when and if you decide to sell. There are plenty of resources available to get information about schools within the communities you are considering. Sites such as www.greatschools.com and www.schooldigger.com offer school reports and profiles, and can provide statistical data such as graduation rates, college-bound percentages, and standardized test scores. You can also learn about special programs the schools offer. In addition to these reports, many schools have their own websites you can peruse. And of course you can always talk to people in the area or take a tour of the school.
Additional factors you'll want to consider during your community search are crime (www.spotcrime.com), recreational activities, proximity to shopping and restaurants, and other specific family needs.
Once you've narrowed your search to two or three communities that fit your price range and lifestyle, make comparisons of price and sales activity. Your real estate professional can help you determine which communities are most sales-worthy at present, and which are more likely to continue to be.
There are many factors involved in selecting the right community for you and your family. Discuss your options with your real estate professional. This will provide the information he or she needs to help you find property listings to tour. Remember, a targeted approach to house hunting is less time consuming, less expensive and more efficient.
First Time Home Buyer Mistakes
Home-price adjustments in markets around the country have opened doors of opportunity for many renters. If you are transitioning from renter to homeowner, the prospect of making such a large investment may be exciting, while at the same time overwhelming. But it doesn't have to be. Here are six common mistakes to avoid:
Not understanding the homebuying process. Educate yourself. Find a homebuyer seminar that you can attend or research online. The U.S. Department of Housing and Urban Development Web site (www.hud.gov) has an entire section devoted to homebuyers with common questions of first-time homebuyers, mortgage and home-buying programs information, downloadable tools such as a wish list and home-shopping checklist, tips on selecting a real estate professional, etc. Likewise, Berkshire Hathaway HomeServices also offers consumers brand-new tools for the homebuying process, such as free home environmental reports, and property profiles.
Not asking questions. There are many facets and intricacies to the homebuying process, so although you may gain a basic knowledge, you will still have questions. Don't hesitate to let your real estate professional know that you are new to the process. Make sure you choose a sales professional who is willing to spend time with you and walk you through the entire process. He or she will expect you to have questions at each step, from house hunting, to making an offer to the closing. Remember, this is one of the largest financial transactions of your life, so you want to have a clear understanding of what's going on.
Buying on impulse. Don't feel pressured into making an offer on the first home you see. Buyers, especially first-timers, may be impressed by the first two or three homes they view. Look at a good selection. List the positives and negatives about each home. Narrow the prospects to three or four and then return for a closer look. When you decide to make a bid on a property, work with your real estate professional to get all of your questions answered before making an offer. But don't wait too long to make an offer. The longer you wait, the greater the chance other prospective buyers may place offers, making it harder for you to negotiate a good deal.
Looking outside your price range. Before beginning your home search, consider getting pre-qualified to get an idea of how much you may be able to borrow. Use this information as a starting point in determining your price range. Then take into consideration other factors that will affect your monthly budget once you are a homeowner, such as property taxes, homeowners insurance, utilities, private mortgage insurance (PMI) and maintenance.
Not planning ahead. Think about personal changes you are planning in the next five to seven years. For instance, are you starting a family, and if so, is the home large enough and will it continue to be? If this will be a starter home or if you think you'll be relocating in a few years, you'll probably want to pay closer attention to appreciation and resale value. If a double-income is necessary to qualify for financing and to make your payments, do your plans foresee an income sufficient to continue making payments?
Failure to focus on location. Don't just focus on the house, examine the community. Does it suit your lifestyle? Is the area safe, well-maintained, close to work, stores and schools? Find out about zoning and what new construction is planned on vacant land in the immediate area. Also consider the property marketability when it's time to sell.
Above all, remember knowledge is key. No question is a silly question. Your real estate professional can be an invaluable asset throughout the process. Making smart home buying decisions will make the home-buying process less scary and your first home purchase a rewarding experience.
Can You Afford That House?
Before you start searching for your dream home, you first need to determine a price range you can afford. According to the Federal Housing Administration (FHA), depending on the consumer's current debt ratio, most people can typically afford to pay 31 percent of their gross monthly income for mortgage payments. For example, if you earn $50,000 annually, then your monthly income is about $4,167. Thirty-one percent of that is $1,292.
There are several online tools to calculate an affordable monthly mortgage using factors such as your current monthly expenses, down payment, and the interest rate. You can also work with a lender to get pre-qualified for a loan. This estimate will help you gauge how much money you may be able to borrow and the monthly mortgage payments.
However, the amount you are able to afford for a home loan should not be your only consideration for determining your price range. With home ownership come other housing expenses.
The most obvious of additional housing expenses are utilities, gas, electricity and water. But don't forget about telephone, trash collection, and cable or satellite bills.
As a property owner, you are responsible for property taxes. The rate will vary from city to city. Intown Atlanta's tax rate is about 1.65-2.00 percent of your home's assessed value. That means for a home with a market value of $200,000, yearly taxes could run $3,300-4,000 yearly. To get a general idea on how much the tax bill will be for a property, ask the seller for a copy of the previous year's tax assessment. Your real estate professional can help you refine these figures.
Another cost you may incur is homeowner association (HOA) dues. Most condominiums and some residential developments/subdivisions/neighborhoods have HOAs, which are legal entities created to maintain common areas and enforce deed restrictions. As a property owner, you are required to pay the established monthly or annual HOA dues. Be sure you factor this cost into your budget.
You also need to consider the upkeep of your home. You should budget for seasonal maintenance such as lawn care, pest inspections and carpet cleaning, as well as unexpected repairs. The amount you budget will depend on the age of the home, as older homes tend to require more repairs such as installing a new roof, painting and replacing older appliances.
Depending on the type of coverage and your area, the costs for homeowners insurance each year can be anywhere from a few hundred to thousands of dollars. And, if you live in an area that has high risks for flooding, earthquakes, hurricanes, etc., you may need supplemental insurance.
Unless the home you purchase is picture perfect, you'll more than likely be adding your personal touch. Therefore, you need add to your housing budget the costs for remodeling and upgrades. According to Remodeling Magazine's 2016 Cost vs. Value Report, the national average for a midrange minor kitchen remodel is $20,192; a minor bathroom remodel averages $17,908.
Even minor cosmetic fix-ups such as light fixtures, window treatments, carpeting and decorative cabinet knobs can begin to add up. By determining all the costs associated with home ownership, you can go into your home search with a reasonable price range that will allow you stay within your budget.
The last step in the home buying process is what real estate professionals commonly refer to as "the closing." The closing, or settlement or close of escrow, is when all the progressive steps in buying a home from the acceptance of the offer, title search, home inspection, mortgage approval, and so on, come together in a final transaction. The documents are ready to sign, the buyer is ready to hand over the purchase price and the seller is ready to transfer title and most importantly the keys!
Usually held in an office setting, most require about an hour and may be attended by some or all of the various parties in the process: the buyer, seller, real estate sales professionals, closing attorney, and mortgage person. The buyer will need to bring two forms of identification and will have had to wire their portion of the funds to the closing office prior to the closing date.
What goes on during the closing? The buyer reviews and signs loan and real estate documents, as well as pays for the property, closing and other costs. One such loan document is the federal Truth-in-Lending disclosure form which describes the annual rate of financing (APR), finance charges, amount financed, total of payments and the payment schedule. There will also be a form itemizing what your monthly payment consists of including the principal, interest, taxes, insurance and other monthly charges. If everything is in order, the buyer signs the loan papers.
Real estate documents are just as important. There's the HUD-1 form, which you have the right to inspect at least one day before the closing. This statement itemizes services provided and the fees charged for the entire real estate transactions. There will be a breakdown of the seller's and buyer's (borrower) financial obligations. Some of the charges include appraisal fee, credit report fee, loan origination fee, loan discount (points), title insurance fee, government recording fees, PMI Premium, inspections and attorney fee.
Other real estate documents that may be reviewed and/or signed include title documents, warranty deed (which transfers the title of the property) and other acknowledgment of reports.
Assuming that the funds are in order, the deed is correct and the title is clear, the final step is the disbursement of funds to the seller for the purchase price of the home. The closing attorney's office should already have the loan funds in its possession, but the buyer will need to wire or bring a cashier's check for for the down payment and the closing costs if they were not included in the mortgage loan.
Once all the papers are signed and funds are disbursed, the buyer receives the keys and is now a happy homeowner!