Construction Management Schools

10 Things Every First-Time Home Buyer Should Know

When it comes to life’s most important milestones, buying a home ranks up there near graduating, getting married and having a kid. Typically, it symbolizes the growth of your family and financial security, the latter of which you’ve worked hard to maintain. Even though it’s currently a “buyer’s market,” you aren’t guaranteed to find the best deal, and regardless of the fluctuations in prices, your purchase is guaranteed to be a big one. In April 2011, the average price of a new home sold in the U.S. was $268,900, according to the U.S. Census Bureau. With that much money at stake, you don’t want to mess it up — or, for that matter, forget about the necessity of affordable home insurance. As you conduct your research and begin to shop around, consider these basic things to simplify the complex process.

1. Already existing debt will limit how much you can borrow: Credit card debt in particular can prevent you from receiving an attractive mortgage offer, as a high debt-to-income ratio demonstrates that you’re a high risk financially to your lender. Typically, lenders prefer borrowers whose debt doesn’t exceed 40 percent of their monthly income. If you’ve accumulated a load of debt on your credit card, pay it off with the money you’ve saved instead of offering a large down payment on a home.
2. A home’s cost doesn’t stop with the sales price As with buying a car, the final price agreed upon when buying a home doesn’t include everything you’ll be paying. The finalized transaction includes loan fees, title and closing charges, government filing fees, broker fees and possibly inspection fees. Then, of course, once you’re living in it, you’ll be responsible for home insurance, property taxes, maintenance and utilities, the costs of which vary. To avoid being blindsided, draft a comprehensive financial plan prior to determining which homes are most realistic to purchase.
3. There are programs to help first-time home buyers: If you’re not financially capable of producing a large down payment, you can find federal, state and local programs that’ll ensure buying a home is still a possibility. For example, with the HUD 203(b) loan, lenders provided 97 percent of financing, and with a HUD 203(k) loan, property and repairs of fixer-uppers are covered. There are also programs that assist those who are struggling with interest rates and loan terms.
4. It helps to pre-qualify with a lender before finding a home: Going into the process, it’s important to know how much lenders are willing to let you borrow based on your credit report, earnings, savings and debt. This can be done with a lender of your choice — ideally an organization you trust and have a history with — and can be undertaken in as little as a few hours. It also allows you to consider the aforementioned extra expenses.
5. Hiring a buyer’s agent is essential: Real estate agents represent the seller of the house, while the buyer’s agent represents the buyer. It’s the job of the buyer’s agent to obtain valuable information about a property, including how long it has been on the market, the details of the last mortgage and the cost of comparable homes in the area. This enables you to get an idea of the price and then consult the buyer’s agent during negotiations. If you purchase the home, then the buyer’s agent earns a commission.
6. A smart buyer examines the neighborhood and surrounding school district: Undoubtedly you want to live in a neighborhood that’s best-suited for your family. If the surrounding area is showing signs of decay and the school district is mediocre, then you should consider looking elsewhere, even if you have to temper your expectations for your home. Keep in mind that the home’s value is largely tied to those factors, which an owner can’t “fix up.” Homes in nice areas, even when modest, have higher resale values.
7. An inspection is a must: It’s common sense, but it can’t be stated enough. The last thing you want is to discover that your home has major issues that cost a lot of money — money you may not immediately have — after you’ve made the biggest purchase of your life thus far. A qualified inspector, one who is a member of the American Society of Home Inspectors (ASHI) or your state’s home inspectors association, will check everything from the foundation to the roof, including appliances, to ensure you’re getting your money’s worth. While issues such as a cracked foundation or termites might be red flags, minor problems related to plumbing and electrical wiring, for example, shouldn’t prevent you from going through with a deal. Note that in many cases the seller will pay for the inspector’s services.
8. A foreclosure deal can be a steal under the right circumstances: Consider it, but don’t become fixated on it. Many buyers fail to realize that the homes are sold “as is,” and the transactions may be complicated. There are several stages in the foreclosure process — missed payments, pre-foreclosure, auction and post-foreclosure, the latter of which is the one that presents the most advantages. Because the bank is motivated to sell the property fast, it’ll be willing to negotiate the overall price, down payment, escrow length and closing costs. Additionally, the title is free of liens or back taxes, and inspections and mortgage financing can be done in a reasonable amount of time.
9. You may have to bid against other potential buyers: With more people looking to buy a home, it’s possible that another buyer could swoop in and steal your deal. Pre-qualifying for a loan helps your cause in a competitive situation, as it shows you’re capable of undertaking such a purchase, but offering a large down payment, 10 to 20 percent, could tip the scales in your favor. Knowing the value of the home should prevent you from overbidding.
10. Insurance costs can be reduced: Hearing about additional expenses during the home buying process can be bit discouraging, but it shouldn’t preclude you from securing your new home. There are several ways to reduce insurance costs and thus lessen the burden each month. An insurance company may offer discounts if you purchase both homeowners and auto insurance from them, install a security system and smoke detectors, and simply enroll in an electronic payment system.