Home Buying for Beginners

There is no question that buying a home is, for most people, a once-in-a-lifetime investment. Today, homes have become expensive and require a great deal of financial responsibility. Even though many people would love to own a home, it is not always a guaranteed investment. More importantly, the process of home buying for beginners can be fraught with worry. But, when done strategically, home buying is a gratifying experience - one that can even offer a chance to become an independent landlord. This article is designed to provide answers to first-time home buyers' frequently asked questions.

First-Time Home Buying 101: Answers to FAQs

• Is this the right time to buy a home?

  Even though many people are buying homes, this does not mean that you also have to rush into it. You should only buy a home when you are ready to be a homeowner, and not because the mortgage interest rates or home prices are very low. And most importantly, you must have the financial resources to pay for the home.

• Should I search online for listings?

  With the availability of the internet, home buying for beginners should start with an online search to get an idea about the location and types of homes available. Also, many real estate websites offer more details about the home, size, cost, amenities, public facilities nearby, and the local community. Once you like what you see, you should physically go and see the place to get a feel for the place

• How will I pay for my home?

  Unless you are wealthy, you will need to secure a loan from a bank or private lender. However, to get a bank loan for a home, you will need to meet certain criteria which include the following: 
• • Good credit score
  • At least 20% down payment
  • Have a stable job and no other debts

• What if I don't have a 20% down payment?

  In most cases, if you do not have a 20% down payment, then you will need to purchase private mortgage insurance, which can significantly increase the cost of the loan by several hundred dollars every month. Even though several federal programs offer loans to people with less than 20% down payment, the eligibility criteria are rigid. The best advice if you do not have the 20% down payment is to save money first. You will avoid a lot of headaches.

• What do I do about a poor credit score?

  If your credit score is poor, then there are several things you can do. First, get a report; you are entitled to three free ones a year from the major credit bureaus (Experian, TransUnion, and Equifax). If your report shows some trouble spots, then correct it by paying your bills on time, resolve any debts that you have, use credit wisely, and leave older accounts open. However, to improve the credit score may take many months or even a year. In general, even if you were to get a mortgage with a low credit score, it will come with a higher interest rate.

• From whom should I borrow the money?

  Today, the first time home buyer has the option of borrowing money from several types of lenders. Banks usually are the most common but they often have rigid eligibility criteria and the interest rate on the loan tends to be higher than private lenders. Private lenders also offer home loans but they do not give out loans readily and can be difficult to work with. The Department of Housing and Urban Development also offers several federal loan programs for first time home buyers but they tend to have strict eligibility criteria, there is a long bureaucratic application process and the loan size is limited.

• What do these mortgage terms even mean?

  The world of mortgages is full of complex jargon that can confuse many people. The two things you need to know are fixed-rate mortgages (FRM) and adjustable-rate mortgages (ARM). With a FRM, you pay the same interest for the duration of the loan. Fixed-rate mortgages are great because you know exactly how much payment you will be making each month.
  
  The one potential negative with a FRM is that you are not able to take advantage of lowering interest rates. The ARM is where the interest rates vary and that means you pay low premiums when the interest rates are low. But the disadvantage is that if the interest rates increase, so will your monthly premiums. In general, it is far safer to go with a fixed-rate mortgage.

• What duration of mortgage should I choose?

  The majority of mortgages are for 15 and 30 years. The former comes with a low-interest rate and you can save a significant amount of money in interest over the life of the mortgage. The 30-year mortgages have low monthly payments and give the owner more breathing room. Which is best for you depends on your priorities- get out of debt quickly or have low monthly payments?

• How important is a preapproval letter?

  When you visit the lender and meet the eligibility criteria for a loan, they will provide you with a preapproval letter. This letter is important to have when making a bid on a home. No seller will pay any notice to you if you do not have this letter. However, getting a preapproval letter does not always mean that your loan is assured. If your financial status changes or you lose your job in the meantime, then the lender will most likely rescind the loan offer. So once you get the preapproval letter, the onus is on you to maintain the same financial state that you had when getting the preapproval letter.

• Is a home inspection really necessary?

  No matter how impressive the home looks, always get the property inspected by a professional. You need to make sure that the home is safe and liveable. The inspection should be done soon after you make an offer. If any deficits are found, you may either rescind your offer or ask the owner to make the repairs and offer you a discount.

• How much are the closing costs?

  Besides the mortgage, first-time home buyers need to be aware that there are closing costs which will include fees for a title search, underwriting of the mortgage, taxes, record filing, and insurance. These closing costs can range from 3-5% of the home value. Expect to pay anywhere from $3000-$8,000 for closing costs, depending on the cost of the home.

• How much do I budget for home repairs and maintenance?

  Once you have moved into your new home, there will be other things to worry about like repairs and maintenance. Unexpected costs are not uncommon in homes and expect to spend about 1% of the home’s value on regular maintenance each year.

Although one can technically purchase a home without assistance from a realtor, first-time home buyers should turn to an agent who can guide you through the process of home buying, reveal where to get the best loans, what to look for in a home, what type of insurance to purchase, and when to get the home inspected. Potential home buyers can get good advice from realtors for free because buyers usually do not pay realtor commission fees; only the sellers do.

Visit Homes & Land now to find a local real estate agent who will help you make your dreams of homeownership a reality.