Where to Start, What to Expect & How to Properly Budget
About the Author: Aaron Garcia is a Project Manager for MorePro Marketing, an Arizona SEO Company specializing in Marketing Websites through Paid and Organic Search. Aaron has nearly 3 years of experience in the industry along with a bachelor’s degree in Marketing from Arizona State University.
Buying your first home is an exciting event, and as someone who has recently bought a home, I can tell you that it is more than worth all the time and effort that goes into it. But if you are anything like me, you might not know where to start. Do you start by finding a real estate agent? Do you start by getting approved for a loan? How do you know if you are getting a good deal? And lastly, how much should you save?
Setting a Reasonable Budget
The first step for new home buyers is to understand your current budget. A big mistake that many people make when buying their first home is assuming that they will be making more money in the future and might be able to eventually handle a mortgage larger than they can afford now. Unfortunately, this will get you further into debt as you make more purchases on credit cards so you can meet your monthly mortgage payments. Once you come up with a figure you are comfortable devoting to a mortgage – usually around 25 – 30% of your monthly income, now you get to take a trip to visit the mortgage company.
Getting Approved for a Mortgage Loan
There are a handful of places you can go for a home loan – the credit union, your personal bank, or a home mortgage specialist. Your individual circumstances will define which avenue will be the best to get your home loan through, but I personally went through the credit union. Make an appointment with a mortgage lender to discuss your finances. You will fill out a couple of forms and they will run your credit. It is important that your finances have been stable for at least a few months before going in to get approved for a loan. This will hopefully allow you to get a better interest rate which will lower your monthly mortgage payment. Within a couple of days, you will get a call from the mortgage company letting you know what you are pre-approved for. This is an important figure because it will determine which houses you can actually put offers in for.
Contacting a Real Estate Agent
Now that you know what your price range is for your first home, you will need to find a real estate agent. I found that the best way to know that you are getting an honest agent is to go off of referrals. If you have friends or family who have bought homes recently in your area, ask them who their agent was and whether they thought that they were treated respectfully and fairly. As a first time home buyer, you are very vulnerable and you put a lot of faith and trust in your agent – it is important to know that you can count on them to provide straight answers.
Once you have chosen your real estate agent, they will ask you what your price range is and in what area you are looking to buy. Hopefully, by now you have done a little bit of research on the side and you have a good idea of what you want in a house and where you want it to be. After you provide your requirements to the agent, he or she should be able to come back with a list of potential homes that meet your needs. This is the first test of whether your agent is good or not – if they don’t do any of the legwork in finding homes that are within your parameters, it might be time to find someone who will. My real estate agent in Chandler, AZ put together a portfolio of about 10 homes that were within my price range and within the area that I wanted to purchase. Then we took a drive to each and every one of them. The agent didn’t try to “sell” me on the home, but actually listened to me as I talked about what I liked and didn’t like about the property.
Making an Informed Decision
After you have seen a handful of houses, you will want to make a list of the pro’s and con’s of each. Another mistake that some people make when purchasing their first home is putting on blinders. They see a home that they want, and they overlook some of the things that are going to end up costing them in the long run. The kitchen might be laid out in a great way, but the appliances and counters are in bad shape. Do you really have the money to spend on kitchen cabinet remodeling? On the other hand, there are some things that you should not see as a deal breaker. For example, the first home I purchased had hideous wall paper in the living room, but the layout of the house was something I liked. If I went off of the wall paper and color scheme alone, I could have passed up a great opportunity. Sit down with your husband or wife, and really be honest about what you can live with and what you don’t want to put up with. If you are in the market for a fixer-upper, don’t spend too much on your home since the cost of remodeling and repairs will bleed your savings dry. If you aren’t very handy or aren’t looking to remodel right away, don’t choose a home that will require extensive repairs or landscape work.
Reconsider your Budget One Last Time
One of the biggest costs aside from your mortgage will most certainly be the maintenance and upkeep of the home – something you didn’t have to worry much about when you were renting an apartment. Consider what your increase in bills will be by living in a home as opposed to an apartment. Depending on where you live, heating and cooling costs are sure to increase. That lawn may look great in the front yard, but do you have the money to keep it green all year long? Maybe it would be better, if you live in Arizona, to install artificial or synthetic turf instead of a natural grass lawn. You will significantly reduce your water bill and time and maintenance costs by keeping it up.
Lastly, you will need to continue saving for a down payment. Again, the exact amount will depend not only on your mortgage company, but on the size of your savings account. Some first time home buyer loans only require a 5% down payment which tends to increase your monthly mortgage payments since the loan will be for a larger amount. Furthermore, you will be required to pay mortgage insurance until you have paid for 15% of the original value of the home which further increases your monthly mortgage costs. By considering the price of the home that you wish to purchase as well as the amount you are able to put down, you will know what you need to have saved when it comes time to sign the papers.
Making and Finalizing the Offer
Once you have found the house you wish to purchase, you will sit down with your agent and make an offer. Nobody ever buys a house for what the list price is unless they are desperate. As a first time home buyer, don’t get tricked into thinking that you have to pay full list price. Make an offer that is a little bit lower than the asking price and wait for them to either accept your offer or come back with a counter offer. Once the offer is accepted, there are still a few very important steps that should be covered. These steps include a home inspection, a property appraisal & the signing of the documents. The home inspection and appraisal will determine if you are really getting a good value. Keep in mind, you have not signed the papers yet, so you can still negotiate through this process.
The home inspection takes place first and a qualified inspector that you and your real estate agent decide upon will look at all aspects of the house. It is important that you are involved in the process of choosing the home inspector so that you know he is looking at things from a stand point that will benefit you and not the seller of the home. His job is to make sure that the home is up to code by checking doors, hot water heaters, electric wires, the roof, cracks in the foundation, termite inspections and a laundry list of other items. He will provide a full report which you and your agent will need to go over. If anything is not up to code, the house cannot be sold in that state and you will usually petition for the seller of the home to cover the costs of getting it fixed. For example, when I bought my home, one of the air conditioning lines was leaking and as a result, there was mold in the guest bedroom closet. The home inspector found this and we asked that the seller pay for the costs associated with repairing the A/C line as well as the removal of the mold and the rebuilding of the closet.
After the home inspection is completed, you will need to get the property appraised. If you have said that you are willing to buy the home for $200,000 dollars and the appraiser determines that the home is only worth $150,000 then you immediately know that something is wrong. In fact, in most states, you will not be able to purchase a house for more than it appraises for. The home appraiser will look at similar homes in the area that recently sold and compare those prices to the price being asked for your home. He considers property value, home size, and home amenities such as pools, garages, heating/cooling and roof type. Once the appraisal comes back and you are comfortable with the agreed upon price, you are now ready to sign the papers.
You will meet at the title agency which is usually selected by you and your real estate agent. Here you will need to bring the check for your down payment and sign all of the mortgage and deed documents that will officially transfer the home and the property into your name.
Congratulations! You have just purchased your first home! Enjoy all of the benefits that owning a new home can offer you.