What To Consider: First Time Home Buyers

Dated: July 6 2021

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Buying a house is a milestone in everyone's life, it is also the biggest investment for most people. Home buying is an exciting process and can become a roller coaster experience in todays real estate market, if you have not planned it well or have a good realtor to help you.

Review Your Finances

The real estate prices are soaring and with so many buyers competing you for every property it is important to start with reviewing your finances and credit score. Does buying a house fit in your financial goals? How will owning a house affect your future financial goals? Will you need a mortgage to buy? And if you need a mortgage then  will you be able to come up with the down payment? You may use any online mortgage calculator to determine the length of loan and the monthly installments, and ascertain it fits your monthly budget.These are some questions you would like to consider to check your financial readiness. After all, you would not want to land into trouble because of a hasty financial commitment!

Down Payment and Pre Approval

After reviewing your financial situation if  you think you will need a mortgage, then you will have to come up with the Down Payment. Down Payment is a certain percent of the purchase price which the buyer has to pay in cash at the time of buying the house. 

This payment may vary from 5%-25% of the purchase price. The remainder will be covered by the financial institution (lender) through mortgage loan. 

If the buyer decides to pay any amount less than 20% of the purchase price of the house, the lender may deem it as a risky loan and charge the Private Mortgage Insurance (PMI). PMI is a payment which protects the mortgage company in case the buyer defaults on the mortgage installments. PMI is usually terminated when the loan balance reaches 78% of the original value of the said property.

There are options for the first time home buyers that lets them pay less than 20% as down payment like Adjustable Rate Mortgage (ARM) and FHA loans. It is a good idea to talk to a lender at this point to figure out the options available. 

The lender can also help you get a Pre Approval for the loan, meaning they will check your credit report, ask for your pay-slips/ or proof of income, whichever is applicable and other documents. With this information the lender makes the calculations and ascertains what would be an estimated amount a financial institution will loan you. 

The Pre Approval letter not only helps the buyer set a realistic expectation of what price range they can look at, it also assures the seller that the buyer’s offer to buy is backed up with their ability to pay. The buyer also gets an estimate of the rate of interest at which they will get the loan. 

Consider Other Expenses 

Moreover, there are other expenses involved during the process of buying, and also after you have bought. Some of the charges that are a buyer’s responsibility during the transaction include paying for the home inspection, appraisal, escrow fees, lender’s fees and other closing costs.

Then there are the expenses after buying the house that must be considered too -HOA fees (if applicable), property taxes, home insurance, and home warranty. Decorating and remodeling to make the house your home will need extra funds too. And don’t forget to keep aside some emergency fund to cover any unexpected expenses you incur other than your home expenses. 

Identify Your Needs From Wants

Buying a house is an emotional journey and having a wishlist of features your family would like in a house is a solid step to begin, but you will have to separate your wants from your needs in order to buy the best available option. Needs can be deal breakers while wants can be ‘good to haves’. 

Things that you cannot change about the house like having more bedrooms, or a bigger backyard can be a need for a family with two young kids. Whereas, the same requirement can be 'a good to have’ and not a necessity for a couple who can do without the extra bedroom or the big size backyard. 

In order to identify your needs from wants, the buyer must ask themselves what will be the features that their family cannot do without. Questions like Will you buy a new build or pre owned? How long do you plan to live in this house? Will your familial situation change in the coming years? Do you need a condo, townhouse or a single family house? Your need from the house may change in future depending on your situation in life like a bigger house, an extra bedroom or a bigger yard. 

It is easy to get carried away with all the options available in the market. Identifying your needs and knowing the process before you start looking prepares you for what to expect. Besides, your realtor can guide you through the process efficiently. 

Things To Consider Before Putting An Offer

New build houses in a subdivision may take somewhere from six months to a year in the current market to get ready for move in. Custom made new builds or houses in non subdivisions may have different timelines. A buyer must look at the available floor plans, upgrades offered, and timelines, along with the final price point which may be more than the base price after you choose all the upgrades. Model homes are decked up with the most upgrades and the buyer must keep in mind that the actual house will look different.

It is crucial to look at a house carefully for any red flags, when looking at a pre owned property. A beautiful house with newer appliances and paint may appeal to a buyer but it is important to take note of any obvious issues with the property like a water stain on the ceiling or mold in the bathroom. Looking at the property for obvious red flags can save precious time and money that will be spent for professional inspection after the purchase offer is accepted. Don’t hesitate to tour the house for a second time before putting in an offer on the property.

Talking to the neighbors may also give you valuable information on the property and the neighborhood. Some questions you would like to ask the neighbors-How is the neighborhood? How did the seller maintain the house? What was the home condition before this seller moved in? About the safety in the neighborhood? 

Are you thinking of remodeling the house after you buy it? Make an estimate of remodels you are planning after you buy the house. Remodeling a house to your needs and liking can be a good idea, if you have other living arrangements while the work is done and the budget to take them up after you have bought the house. 

Buying a house involves many considerations like sorting your finances, and knowing what you need in a house. The above mentioned are just some of them, each transaction is unique in its own way and your realtor can help you through the whole process. With careful planning and informed decisions ( and after many offers :-) you can finally arrive home!

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Deepali Agnihotri

I am a licensed real estate professional, focusing on homes in the North Phoenix, Glendale and Peoria. I pride myself on ability to understand my client's real estate requirements and help them connec....

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