After having a recent conversation with someone actively looking to buy their first home, I realized it would have been helpful if they knew more about the process before getting knee-deep into it. Here are a few things that happened to come up during their transaction and I think it would be a helpful resource for any first time home buyers.
Should You Get Pre-Qualified or Pre-Approved?
Often a mortgage lender will tell a potential buyer they are pre-qualified for a loan. With a pre-qualification, little information about your finances is verified. You might find out later that the amount you were pre-qualified for is far different than what you actually will qualify for. What you should do is get pre-approved. More information, such as your credit, is checked and you can have a better idea how much you can afford for your first home. With a pre-approval, you’re in a better position to negotiate because the seller knows that your offer is solid. You’ll also avoid wasting time looking at homes outside of your price range.
Know the Difference Between an Offer and a Purchase and Sales Agreement.
What is a Purchase Agreement? The purchase agreement sets the amount of your offer and usually includes extra details, such as which appliances stay, who pays closing costs and when you’d like to take possession of the house. When you sign the purchase agreement you will be expected to offer “earnest money.” Earnest money is a deposit showing that you’re committed about your offer to buy the home; it’s usually 3-5% percent of the total price and later applied as part of your down payment or other closing costs. It is a check that the listing agent holds on to until the offer has been accepted. It is also protected and refundable as long as you meet the terms of your agreement.
Try your Best not to Be Overly Paranoid.
While it is best to think things through thoroughly, paranoid buyers 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, or demand sellers make certain concessions during negotiations and show frustration when they are 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. As a buyer it costs you nothing to use a real estate agent, the seller pays the cost of commission and real estate agents are helpful in negotiating on your behalf and has been through the home buying process many times.That knowledge is invaluable. It is almost certain that one or more conflicts will arise along the way and you will have someone by your side that will know the best way to handle it.
What to do if a Bank isn’t Willing to Work With You?
If you can’t find a bank willing to lend to you consider getting an FHA loan. The Federal Housing Administration has a program that insures the mortgages of many first-time homebuyers. As a bonus, the FHA requires a down payment of only 3.5% from first-time homebuyers. You can also try mortgage companies or a private lender. Mortgage companies offer different programs and can be easier to work with. A private money lender is a non-institutional (non-bank) individual or company that loans money, generally secured by a note, for the purpose of funding a real estate transaction. The drawback of this type of funding is that you will be paying a much higher rate than a traditional mortgage possibly 2 to 3 times as high.
Know the Other Expenses Related to Home Ownership.
Other fees and expenses will come along with your new home, first at close and then for the life of your ownership. You will be expected to pay your down payment including your earnest money. Typically this is 3-5%. For a home inspection expect to pay between $300 – $500 (well worth every dollar) and closing costs somewhere between $3,000 – $4,000.
Your annual costs will include homeowners insurance and real estate taxes. For most homeowners, the annual costs for a homeowners insurance policy can be estimated by dividing the value of the home by 1,000, then multiplying the result by $3.50. It is also easy to find out how much you will be expected to pay in taxes. You can find out the assessed value of each home by searching the database provided in the link below
Once you know the assessed value of the property divide that number by 1,000 and then multiply the result by the towns tax rate in which the property is located (Providence 18.8).
If I didn’t address any questions you may have on this topic feel free to comment on this post or ask me directly!