Picture this! You have been renting apartments now since you graduated. You are sick of having to call the office for every little thing that goes wrong with the place. Your neighbors are heavy metal lovers and night owls. And would someone please let you paint the walls the color you really want versus this off white madness. All your friends and family have been telling you for months that you should just bite the bullet and buy a house. You are unsure because it is seems like such a big step for you to take. Buying a house is a big deal. You think, “I will be committing myself to the same place for years, paying an outlandishly large mortgage with most of the first half of the payments going towards interest versus the principal. Is this really something I want to do?”
Buying your first home is not an easy decision to make no matter where you are in your life. There is so much more to it than you probably even realize. In order to help you with this transition, please find below some frequent questions to consider before buying your first home. When you are done reading over the questions, please make sure to sign up for us to create a free, no-obligation home search portal for you. We would love to help you start your home search process by giving you quick and real time access to homes currently on the market.
Here are some frequent questions to consider when buying your first home.
Do I need to save before I buy my new home? If so, how much? – It is always best to save up for a home, despite what programs might exist for first time home buyers. By putting down a larger down payment, you can reduce your monthly mortgage payments to a more manageable amount. A larger down payment will also allow you to save further by eliminating the need for a Mortgage Insurance Premium. You will also have other expenses during the home buying process, such as home inspections, earnest funds deposit and option funds, that require you to have the necessary funds. That being said, it can be very difficult to find room in your budget today for saving. There are differing amounts of down payments based on the mortgage you want to use. Conventional loans are not backed by the federal government and will require a minimal down payment of 20% or higher (although there are some programs that let you put less down). How much is 20%? For a $100,000 home, you would need $20,000 down payment to get the mortgage. For the government backed loans (FHA, VA, USDA), the down payment is less. FHA loans require a 3.5% down payment while VA loans require no down payment. USDA loans range between zero and up (certain rural USDA districts don’t require any down payment). Bottom line, for most of you, it will cost anywhere from 1% to 20% down payment to get a mortgage.
What programs exist for first time home buyers? Yes. There are quite a few programs out there to assist first time home buyers with getting their first home. Most of these programs are administered by a level of government. Check out this article for more information on the programs. In essence, these programs assist with down payments. Some of these programs give first time home owners a grant (you don’t have to pay it back) while others extend loans to first time home buyers. You can also get assistance with your tax liability from some of these programs (you can claim more of the home purchase as a deduction on your taxes). Of course, there is always a catch. With these programs, most will require you attend workshops on buying your first home and being financial responsible.
Where do I get a mortgage? – When buying your first home, most of us will require a loan to do so. These loans are called mortgages and you can get them from banks or mortgage companies, that specialize in these type of loans. You can even find a mortgage broker that will help you with the process of applying for a loan. There are several options so it is best to shop around and ask friends and family to give you some recommendations. Call each one that is recommended to you and find out which ones fits your personality and lifestyle the best. If you are working with one of the first time home buyer programs, they will most likely have a list of approved mortgage providers. You will be required to work with one of them. Also, as a first time home buyer, some lenders will have some specialized programs for you that they do not advertise too heavily so be sure to ask about incentives they have for someone like you. One final thought, you will be charged interest for getting a mortgage. This interest rate plays very heavily in your monthly mortgage payment so be sure to shop around to get the best interest rate you can.
What different types of mortgages exist? – This is a difficult question to answer in a few words because there are so many of them on the market today. For every lender out there, there is probably two or three special programs they have available for you to consider. However, here are some basic thoughts to keep in mind about mortgages. Mortgages are paid back monthly by the borrower. The amount you pay is based on how you structured your loan. You can have a fixed-rate loan which means your monthly principle and interest stay the same throughout the length of the loan, or you can have a Adjustable Rate Mortgage, which can change over time. ARM mortgages tend to be lower than fixed rate mortgage at the beginning of the term, but you have the risk of them going higher in future years of the term. You also have to think about the term length for the loan. Do you want a 30 year loan, or do you want to pay it back quicker with a 15 year loan (higher monthly payments!)? Mortgages can be either backed by the federal government, or not. If it is backed by the federal government, then the lender is protected in case you ever default on the loan. Also, depending on the mortgage amount, you might have to consider getting a jumbo loan or a conforming loan. A jumbo loan does not meet governmental underwriting guidelines so are more risky so you will incur larger down payments and interest rates. For another quick tutorial on the subject, check out this page.
What will be my monthly payment? – This depends on a whole lot of variables. There are plenty of tricks and guides on how to do the mortgage payment in your head. However, with all the various monthly mortgage payment calculators on the web today, I would just use one of them. Here is one of my favorites. Most title companies will also have apps that break down all the financials of buying a home. Alamo Title had one of the first ones on the market: AlamoAgent.
What type of home do I want? What is my wish list for my first house? – One of the most exciting and fun things to do as a first time home buyer is to figure out what you want in a house. I recommend you sit down and just brainstorm all the things you want in a home. Because the market is so competitive today, you will need to have a realistic ideal in mind before looking at homes or you will get frustrated because you can’t find the perfect home. I would categorize each want and need on “must have” or “nice to have”. In this way, you can look at homes for the must haves and use the nice to have as a way to make a final selection. You could also try a weighted system where each criteria gets a weight and then you determine the least weight total you would want in a home and try to match that minimal total. Or, you an try something mixed. No matter what technique you use, be sure to keep a level head on what you will get for your first home. Most people will sell their first home within ten years of buying it so your first home won’t have to be your “forever home”.
Do I want to buy resale home or build a new one? – I am sure you have driven by some new home developments in your area and maybe even popped into one to see how they decorated. Wouldn’t it be nice to be able to build a new house? The reality of the current market, however, makes this difficult for most first time home buyers. Home builders have found out that they can get more profit by building higher end houses so we are seeing less and less options for people who can’t go over the $200K level for their first home. If the higher price point is a possibility for you, I would caution against jumping at it right away. Be sure to research the home builder first for quality and their incentives they are including with the new home build. It also takes awhile to build a new home so be sure your lease agreement allows you stay in your current place while your home is built.
Where do I find a home? Who can help me find one? – Most people today flock to the Internet to start their home search process. It is easy to sit in your PJs after a hard day of work and surf the various portals to find the perfect house for you. Be forewarned, however, these portals will be slightly out of date. If you want real time information, you will need a MLS Portal(sign up here) that will have accurate up to date information on homes. It is very frustrating to think a house is still available when it actually is not. What do you do though when you actually want to start seeing homes? You have to get hold of a realtor. I would love to chat about it with you. Just use the chat window at the lower right hand side the screen and we can start chatting right now.
Once I find a home I want, what’s next? – For that answer, go here to see some other frequent questions to consider as a first time home buyer.
Note: Please be sure to keep up with other Frequent Questions to Consider as a First Time Home Buyer. We have a whole series that you can utilize to help you with your process. If you want to receive emails about the new ones as they become available, be sure to sign up below for our monthly newsletter.