By Betsy Fallwell
When people talk about the most exciting times of their lives, they’re quick to mention graduations, weddings, the births of their children. I’d add one more milestone to that list: the purchase of your first home.
For me, buying our first place was an emotional experience. The first time my husband and I pulled into the driveway of what would ultimately become our new home for a showing with our real estate agent, I burst into tears. They were not unlike the tears I shed when I tried on the dress that would be my wedding gown for the first time; they were tears that fate had brought me to the perfect place at the perfect time, and that I had found something that was meant specifically for me.
But for many first home buyers, finding the right place is an emotionally taxing experience. By arming yourself with as much information as possible before signing on the dotted line, you’ll ensure for yourself a smooth process.
Back when we bought our home in 2006, banks were basically giving away mortgages. Not anymore. Thanks to the mortgage meltdown, home loans are more difficult to come by than ever these days. That’s why you need to equip yourself with the right information from the right sources.
Many institutions offer free seminars and classes designed to educate first home buyers about the process. Real estate agents will often hold educational programs on weekends or in the evenings, as will some banks, lenders, and mortgage brokers. Not only can these free programs help you learn more about the housing industry, but they can also put you in touch with professionals who can help you navigate it.
Work with the Pros
Just like you shop around for your first home, you’ll also want to shop around for the right team: that means a mortgage broker and a real estate agent. Because a home buyer is not responsible for paying these professionals their commissions, there’s no reason first home buyers have to go it alone.
A mortgage broker introduces borrowers to a variety of home loan products from a variety of lenders. Unlike the bank’s mortgage office, an independent broker can show you home loans from multiple companies, saving you time and – eventually – money. Your broker may also show you home loans that are specifically designed for first home buyers, like the FHA program. Their commission is paid by the lender whose mortgage you ultimately choose.
A real estate agent helps you navigate the housing market, taking stock of your needs and wants, as well as your budget. Some are called Realtors, because they are part of a specific trade organization, but don’t be fooled; most real estate agents have the same education, experience, and certifications as a Realtor. These pros receive their commission – usually 3% of the purchase price – from the property’s seller.
Set the Groundwork for Your Loan
Before you start shopping for your first home, spend some time with your mortgage broker going over your finances. Your broker will determine how much you’ll qualify for, using something called a debt-to-income ratio. This is a basic comparison of your debts to your income, and determines whether you’re a strong candidate for a loan. Once you’re pre-approved for a loan, you’ll be ready to start shopping, all while knowing how much you can spend.
But remember that knowing how much the lender says you can spend it not the same as setting your own budget. A lender may approve you for a $250,000 mortgage, but you may be more comfortable with monthly payments on a $200,000 home loan.
Separating Needs vs. Wants
This is one of the toughest parts for first home buyers. When they start out, they’ve got dreams of grandeur: massive homes on manicured lots, tons of room inside, plus lots of upgraded features. But the fact is, if you’re coming into the buying process with a small budget, you might have to give up on some of those added features.
This is where differentiating between a “need” and a “want” comes into play. A need is something you can’t change about the property (at least not without a major overhaul). They include things like:
· The property’s location
· The size of the lot
· The topography of the lot
· The aesthetics of the neighboring houses (which can have an impact on your property value)
· The basic footprint of the house (ie, you can’t make a 2-story a ranch)
· The basic floor plan (yes, this can be changed, but usually costs tens of thousands of dollars)
Then there are wants. These are things you can more easily change if they don’t live up to your preferences, like:
· Type of flooring
· Paint color
· Countertop material
Focus on the needs, and consider any wants a bonus.