First Time Home Buyers
CONGRATULATIONS! You have decided to buy a new home. Purchasing a new home is a big step, especially for first–time buyers. Home ownership means you no longer pay monthly rent for the roof over your head. You can do what you want with your house (within reason). When you leave, you can sell it to recoup the purchase price and - with any luck - earn a profit too.
Buying real estate is the quickest way to create wealth. A home is an investment. It takes more than the down payment to get you through the door of your first home. Home ownership comes with a slew of disadvantages, responsibilities, and downright headaches.
So before going any further, consider whether your lifestyle and finances make home buying a smart move for you.
If you're ready to buy a home, you need to get your finances in order first.
When buying, consider the closing costs and future expenses that come with any property. So your first step, even before you start the actual hunt for a property, should be to get your financial house in order.
In general, you need to come up with enough money to cover three costs: earnest money - the deposit you make on the home when you submit your offer, to prove to the seller that you are serious about wanting to buy the house; the down payment, a percentage of the cost of the home that you must pay when you go to settlement; and closing costs, the costs associated with processing the paperwork to buy a house.
Many experts agree that homeowners should have 1–3% of your home’s purchase price in savings for improvements and surprise expenses. Likewise, mortgage experts say you hold at least 6 mortgage payments in the bank in case of job loss or other circumstances.
Start with your credit
Credit reports are kept by the three major credit agencies, Experian, Equifax, and TransUnion. Among other things, they show whether you are habitually late with payments and whether you have run into serious credit problems in the past.
A credit score is a number calculated from a formula created by Fair Isaac based on the information in your credit report. You have three different credit scores, one for each of your credit reports. A low credit score may hurt your chances for getting the best interest rate, or getting financing at all. So get a copy of your reports and know your credit scores.
Errors are not uncommon. If you find any, you must contact the agencies directly to correct them, which can take two or three months to resolve. If the report is accurate but shows past problems, be prepared to explain them to a loan officer or lender.
A valid credit score should represent a minimum of three trade lines with a minimum of 12-months history.
Know what you can afford
When you begin your home–buying process, you probably have a firm idea of what you can afford. Be sure your estimates account for the big picture. Consider these expenses when figuring your home-ownership bottom line. You can start with one of the Web's many calculators. For a more accurate figure, ask to be pre-approved by a lender, who will look at your income, debt and credit to determine the kind of loan that's in your league.
The rule of thumb here is to aim for a home that costs about two-and-a-half times your gross annual salary. If you have significant credit card debt or other financial obligations like alimony or even an expensive hobby, then you may need to set your sights lower.
Another rule of thumb: All your monthly home payments should not exceed 36% of your gross monthly income.
The size of your down payment will also determine how much you can afford.
Buying real estate is the quickest way to create wealth. A home is an investment. It takes more than the down payment to get you through the door of your first home. Home ownership comes with a slew of disadvantages, responsibilities, and downright headaches.
So before going any further, consider whether your lifestyle and finances make home buying a smart move for you.
If you're ready to buy a home, you need to get your finances in order first.
When buying, consider the closing costs and future expenses that come with any property. So your first step, even before you start the actual hunt for a property, should be to get your financial house in order.
In general, you need to come up with enough money to cover three costs: earnest money - the deposit you make on the home when you submit your offer, to prove to the seller that you are serious about wanting to buy the house; the down payment, a percentage of the cost of the home that you must pay when you go to settlement; and closing costs, the costs associated with processing the paperwork to buy a house.
Many experts agree that homeowners should have 1–3% of your home’s purchase price in savings for improvements and surprise expenses. Likewise, mortgage experts say you hold at least 6 mortgage payments in the bank in case of job loss or other circumstances.
Start with your credit
Credit reports are kept by the three major credit agencies, Experian, Equifax, and TransUnion. Among other things, they show whether you are habitually late with payments and whether you have run into serious credit problems in the past.
A credit score is a number calculated from a formula created by Fair Isaac based on the information in your credit report. You have three different credit scores, one for each of your credit reports. A low credit score may hurt your chances for getting the best interest rate, or getting financing at all. So get a copy of your reports and know your credit scores.
Errors are not uncommon. If you find any, you must contact the agencies directly to correct them, which can take two or three months to resolve. If the report is accurate but shows past problems, be prepared to explain them to a loan officer or lender.
A valid credit score should represent a minimum of three trade lines with a minimum of 12-months history.
Know what you can afford
When you begin your home–buying process, you probably have a firm idea of what you can afford. Be sure your estimates account for the big picture. Consider these expenses when figuring your home-ownership bottom line. You can start with one of the Web's many calculators. For a more accurate figure, ask to be pre-approved by a lender, who will look at your income, debt and credit to determine the kind of loan that's in your league.
The rule of thumb here is to aim for a home that costs about two-and-a-half times your gross annual salary. If you have significant credit card debt or other financial obligations like alimony or even an expensive hobby, then you may need to set your sights lower.
Another rule of thumb: All your monthly home payments should not exceed 36% of your gross monthly income.
The size of your down payment will also determine how much you can afford.
Choosing a Real Estate Agent: Don't buy a home without professional help.
With all the tools and advice available today ranging from books and magazines to online advice like this lesson - it would be possible for you to buy your home almost completely without the aid of real estate professionals.
That's not necessarily recommended.
A good real estate professional can guide you through the entire process and make the experience much easier. You need a qualified, experienced agent who can help you understand the process. A real estate broker/agent will be well-acquainted with all the important things you'll want to know about a neighborhood you may be considering.
With immediate access to homes as soon as they're put on the market, the broker/agent can save you hours of wasted driving-around time. When it's time to make an offer on a home, the broker can point out ways to structure your deal to save you money. He or she will explain the advantages and disadvantages of different types of mortgages, guide you through the paperwork, and be there to hold your hand and answer last-minute questions when you sign the final papers at closing. And you don't have to pay the broker anything! The payment comes from the home seller - not from the buyer.
Why should I buy, instead of rent?
A home is an investment. When you rent, you write your monthly check and that money is gone forever. But when you own your home, you can deduct the cost of your mortgage loan interest from your federal income taxes, and usually from your state taxes. This will save you a lot each year, because the interest you pay will make up most of your monthly payment for most of the years of your mortgage. You can also deduct the property taxes you pay as a homeowner.
In addition, the value of your home may go up over the years. Finally, you'll enjoy having something that's all yours - a home where your own personal style will tell the world who you are.
That's not necessarily recommended.
A good real estate professional can guide you through the entire process and make the experience much easier. You need a qualified, experienced agent who can help you understand the process. A real estate broker/agent will be well-acquainted with all the important things you'll want to know about a neighborhood you may be considering.
With immediate access to homes as soon as they're put on the market, the broker/agent can save you hours of wasted driving-around time. When it's time to make an offer on a home, the broker can point out ways to structure your deal to save you money. He or she will explain the advantages and disadvantages of different types of mortgages, guide you through the paperwork, and be there to hold your hand and answer last-minute questions when you sign the final papers at closing. And you don't have to pay the broker anything! The payment comes from the home seller - not from the buyer.
Why should I buy, instead of rent?
A home is an investment. When you rent, you write your monthly check and that money is gone forever. But when you own your home, you can deduct the cost of your mortgage loan interest from your federal income taxes, and usually from your state taxes. This will save you a lot each year, because the interest you pay will make up most of your monthly payment for most of the years of your mortgage. You can also deduct the property taxes you pay as a homeowner.
In addition, the value of your home may go up over the years. Finally, you'll enjoy having something that's all yours - a home where your own personal style will tell the world who you are.
