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Tips for First-Time Home Buyers
作者:DMVRealtor
发表时间:2019-02-18
更新时间:2019-02-18
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Being a first-time home buyer is exciting. But it can also feel
overwhelming—especially when you see median listings priced at
$500K and available decent homes flying off the market in 30
days. With real estate trends like those, you might be tempted
to make an impulsive purchase that could hurt your financial
goals and keep you paying a mortgage well into retirement.
No one wants that. Buying your 1st home is a huge family
decision and it is worth doing this the right way. And that
means buying a home that you love and that doesn’t hurt your
future money goals. Here compiled together 10 tips for first-
time home buyers as they tackle the home-buying process. Put
these into practice today so your first home is a blessing not
a burden.

1. Pay Off All Debt and Build an Emergency Fund. Owning a home
is expensive—much more expensive than renting, even if your
monthly house payment will be similar or cheaper than your
current rent amount. That’s because when you own a home, you’re
responsible for all the maintenance and upkeep costs. And those
can add up fast. So, before you even think about buying your
first home, make sure you can balance and manage your current
family debt with comfort and have an emergency fund of three to
six months of expenses in place.

When you get into a home with no payments (besides the
mortgage) and have a nice big emergency fund, you’ll have the
cash to pay for huge expenses that suddenly come your way.
You’ll be able to love the life you’ve set up for yourself
because stress and worry won’t be part of the equation. Though
you may not necessarily be debt-free, your family net asset
should be positive and you want to stay that way. So, as you’re
shopping for your first home and getting excited about
decorating and filling it with new furniture, be mindful of
your budget. You might have some empty rooms for a little
while, but your budget and your future selves will thank you.
Exercise extreme caution to take on any new debt in the process
of shopping for a home because doing that in the middle of
buying a house could delay your approval for a mortgage and
make you miss out on the perfect home. Don’t do it!

2. Determine How Much House You Can Afford. Before you get
emotionally attached to a beautiful house, check your monthly
budget to determine how much house you can afford. You need to
leave room in your budget for other things, so make sure your
monthly housing costs (including HOA fees, taxes, insurance,
etc.) are going to be no more than 25% of your monthly take-
home pay.

For example, let’s say you bring home $5,000 a month. Multiply
that by 25% to establish your maximum monthly house payment of
$1,250. Based on a 15-year mortgage with a 4% fixed interest
rate, here are the home options you can afford (not including
taxes and insurance):
. $211,238 home with a 20% down payment ($42,248)
. $241,415 home with a 30% down payment ($72,424)

That’s an easy way to find a number in your ballpark. But don’t
forget that property taxes and homeowner’s insurance will
affect your monthly payment. You’ll also need to factor those
numbers in before settling on a maximum home price. Since
property tax rates and the cost of homeowner’s insurance vary,
check with your real estate agent and insurance company for
estimates to calculate how much house you can afford.

3. Save a Down Payment. If saving up to pay the total price of
a house in cash isn’t reasonable for your family’s timeline, at
least save for a down payment of 20% or more. Then you won’t
have to pay for private mortgage insurance (PMI), which
protects the mortgage company in case you can’t make your
payments and end up in foreclosure. PMI usually costs 1% of the
total loan value and is added to your monthly payment.
If a 20% down payment seems out of reach for you, first-time
home buyer programs that offer single-digit down payments may
sound tempting. But don’t do them! These options will cost you
more in the long run. Here are some low-to-no down payment
mortgage options to avoid:

. Adjustable-Rate Mortgages (ARMs): ARMs might seem great with
a low initial interest rate, but they allow lenders to adjust
the rate to transfer the risk of rising interest rates (and
monthly payments) to you.
. FHA Loans: You may be able to get an FHA mortgage with as
little as 3.5% down, but you have to pay PMI for the life of
the loan—that’s thousands of dollars that won’t go toward
paying off your mortgage.
. VA Loans: VA loans allow veterans to buy a home with no down
payment. But if the real estate market shifts, you could easily
owe more than the market value of your home. These loans also
carry a bunch of fees and usually charge interest rates that
are higher than those of conventional loans.

I generally recommend a 15-year, fixed-rate conventional
mortgage with a 20% down payment, and here are the reasons why:
. A 15-year term creates a higher monthly payment, but you’ll
pay off your mortgage in half the time, have a lower interest
rate, and save thousands of dollars in interest.
. A fixed-rate conventional loan keeps your interest rate the
same for the life of the loan, which protects you from the
increasing expenses of rising rates.

Please don’t get a 30-year mortgage because of the lower
monthly payment. When you look at the math on a 15-year versus
a 30-year, you’ll realize you pay a whole lot more money on a
30-year mortgage in the long run though this may not apply to
property investors.

4. Save for Closing Costs. Along with your down payment,
you’ll also need to pay for closing costs. If you’re a first-
time home buyer, you may be wondering how much it costs to
close on a house. On average, closing costs are about 3–4% of
the purchase price of your home.(2)Your lender will give you a
specific number so you know exactly what to bring on closing
day. These fees pay for important steps in the home-buying
process, including:

. Appraisal
. Home inspection
. Credit report
. Attorney
. Homeowner’s insurance

Let’s see how this plays out with our example of a $172,600
home. If you multiply $172,600 by the higher 4% closing cost
average, you’ll find that you need $6,904 for closing costs.
Now let’s add that to your 20% down payment of $34,520. The two
together equal $41,424, which is about what you’ll need to save
to pay for the down payment and the closing costs on your first
house.

$172,600 x 4% = $6,904
$6,904 + $34,520 = $41,424

You want to save for your closing costs and down payment as
quickly as possible—with the same amount of intensity I urge
people to use when they’re getting out of debt and building a
full emergency fund. In fact, it’s okay to put retirement
savings on hold for a short period of time to save for a home—
but you’ve got to act.

Pick up a second job, sell whatever isn’t nailed down, move
into a smaller space, add a roommate and charge rent—do
whatever you need to do to save for your closing costs and down
payment as fast as you can.

5. Get Preapproved for a Loan. Once you’re confident you have
enough cash saved to pay for closing costs and 20% of your
home, you’re ready to handle the other 80% by talking to a
mortgage lender.

Get prequalified for a loan and take the extra time to get a
preapproval letter before you start your home search.
Preapproval shows sellers that you’re a serious buyer, which is
a great way for first-time home buyers to get ahead in a
competitive market. To get preapproved, your lender will need
to verify your financial information (proof of income, taxes,
credit profile, etc.) and submit your loan for preliminary
checking.

6. Find a Home for Sale in Your Price Range. Find homes you
like online and send them to your real estate agent so they
have a good idea of what you’re looking for. Then they can use
the multiple listing service (MLS) to find homes that meet your
criteria in your desired areas. An MLS is created, maintained
and paid for by real estate professionals to help buyers view
the largest pool of properties for sale in the marketplace.
Real estate agents also provide valuable market expertise and
can help you find great deals on homes as soon as (or before)
they’re listed.

7. Research Neighborhoods for Best Fit. After you’ve found
some homes for sale in your price range, be careful not to make
a decision based on the property alone. According to a NAR
survey, 78% of home buyers believe neighborhood quality is more
important than the size of a home. And 57% of buyers would opt
for a shorter commute over a larger yard.(4) So make sure you
factor neighborhood quality and location into your decision.
Ask your real estate agent for information on crime rates and
the quality of schools around your prospective neighborhoods.
Calculate your new commute times to see if they seem
manageable. Visit the neighborhood at different times and days
to check for traffic conditions, noise levels, and if people
are comfortable being outdoors. Only choose a neighborhood that
you and your family feel good about.

8. Attend Open Houses and Think Long Term. Once you’ve narrowed
down the neighborhoods, attend a few open houses. Looking at
homes that are for sale—even if they’re not a perfect fit for
you—is a great way to learn more about the area. When you
eventually do find a house you love, you’ll know how your place
compares to better or worse homes in that neighborhood. When it
comes to buying, a good strategy is to find the most affordable
house in the best neighborhood. If you buy at the bottom of the
price range in a good neighborhood, you’ll have more room to
build home value. For instance, let’s say you find a home
that’s the only one on the dream block (location) without wood
floors and granite countertops. If you have the cash to make
those upgrades, you’ll be able to add instant value to your
home!

9. Make a Competitive Offer (That’s Within Your Budget). Let’s
say you found the home you want and can afford. Since you’re
already preapproved for a loan, you’re ready to make an offer.
If you’re a first-time home buyer, it may be hard to know how
much you should offer. That’s when you can rely on the
expertise of your real estate agent. Ask your agent to help
you make sure your offer is competitive but also within your
budget and the home’s value. Be careful not to make an
impulsive offer that’s higher than you can afford just to knock
out the competition. A personalized letter might help your
offer stand out among multiple bids in a hot market.

10. Prepare for Closing. Once a seller accepts your offer, the
closing process will begin. Keep things running smoothly by
knowing what to expect when closing on a house. The average
closing process takes 40 days, which gives you plenty of time
to tackle closing items.(5) A real estate agent will schedule
the remaining steps, from home inspection to final walkthrough,
and keep you informed about any road blocks. As you prepare
for closing, make sure you read every document and ask your
real estate agent to explain anything you don’t understand—
especially before you sign the official contract for the home
transaction. It’ll be your signature on the documents, so
you’ll be the one responsible for anything you sign.

Ready to Get Started?

Your first home is a big purchase - maybe even the biggest one
you’ll have ever made up to this point in your life. Because
of that, you don’t want to risk messing this up. Feel free to
get in touch if there are any questions about how to take the
weight off your shoulders to navigate through: find a home,
negotiate a deal, and see the process through until closing.
Good luck!

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