Buying a home for the first time is an exciting and life altering decision. The process can feel overwhelming at times, understandably so, but there are ways to make it feel less daunting, starting with knowing what to watch for in the housing market. To start, buyers should examine how the trends in their local market compare to what’s going on nationwide.
“Find the homes that have sold recently in your neck of the woods and learn more about them,” Danielle Hale, chief economist at Realtor.com, tells Market Watch. “How long were they on the market? How much over asking did they sell for? Did the buyers have to do major renovations afterward? These details will give buyers a sense of how competitive their local market is.”
Then, home buyers should outline a strict budget on the mortgage, insurance and home maintenance to help them figure out homes they can afford, and avoid looking for homes at the top end of that budget because homes in many markets are being bid up well above asking. If a buyer lets emotion get in the way they could set themselves up for financial trouble. There are a lot of ins and outs to home buying, so read on below for additional information first time home buyers should know.
Buying a home is a huge commitment
Before you take the leap into home ownership, home buyers should be 100 percent aware that it’s a big commitment. The average mortgage loan term is 15 to 30 years and although you don’t need to stay in your home for that amount of time, you’ll want to be sure you’re ready before you take on a mortgage.
Consider whether you have any events on the horizon that could affect your location, income or expenses and, if so, think about pausing the home search. Additionally, if you’re sure that you want to continue in the process, you’ll want to know your loan options. There are multiple types of mortgage loans and the type of loan you choose will determine your down payment amount, what type of home you can buy and more.
Get a mortgage preapproval
Jumping head first into house hunting is nice in theory, but you will definitely want to get a mortgage preapproval before you begin comparing properties, suggests Rocket Mortgage. A preapproval letter is a document from a lender that tells you how much loan money you can get. It’s based on your financial information, such as W-2s, bank statements and your credit score. It’s also more valuable than something such as prequalification because your lender has actually checked all of your financial information and confirmed you can be approved to get a certain loan amount.
Maintaining your credit is crucial
If you’re buying a home for the first time, know that when doing so, it’s ill-advised to open a new line of credit seeing as lenders will pull your credit report when you apply for mortgage preapproval and again before you close on the house and its corresponding mortgage.
If they find that you’ve taken out another loan or line of credit, that your credit balance has increased or that you’ve started to make late payments, it could risk your final approval. It’s nothing to worry about — lenders just want to see that your behavior patterns are consistent and that you’re reliable, so just keep paying your bills on time and don’t engage in any risky spending.
An inspector could be a gamechanger
You will want to hire a professional inspector before you get a home so you can learn of specific problems with the home and then use the results to request concessions from your seller. An earnest money deposit letter often includes a home inspection contingency, which would allow you to invalidate an offer and not lose your deposit in the instance of extensive repairs.
Closing costs are very much real
Don’t assume that your down payment is the only thing you need to close on your mortgage loan. You’ll also need to cover closing costs before you move in. Closing costs are expenses that go to your lender in exchange for arranging certain loan services. You’ll see your exact closing costs on a document called a Closing Disclosure. Generally, you can expect to pay three to six percent of your total loan cost in closing costs.
According to Rocket Mortgage, as a first-time buyer, you may qualify for government-backed grants or loans that assist with closing costs. Additionally, it’s not uncommon to ask the seller to help cover closing costs. Seller concessions could be a flat percentage of the total closing costs or cover specific fees, like appraisal or attorney fees. If you’re considering asking for seller concessions, talk to your real estate agent first because in hot markets, it could put off some sellers.
This article was created by SheKnows for Rocket Mortgage.