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Buying a home is a big purchase at any point in life, but is even more significant when you are buying one for the first time. It’s always an exciting time, but often you can be so focused and caught up on how excited you are that you ignore some very important things in the home buying process. This can make the difference between you enjoying that home for years or enduring until you can move on to the next one. In this post, we will cover some important aspects in buying your first home and also highlight some pitfalls you should avoid.
Finance is the most important aspect when it comes to the purchase of a home. The first financial discussion you should have is affordability. Just because you have some money in the bank does not mean you can afford to buy a house. To check just how prepared you are to purchase a home, you should make a simple calculation. Write down your household net monthly income, then write down the sum of your monthly expenses from food to dry cleaning, every single one of them (excluding your rent, because that won’t factor when you own a home). Now subtract your current expenses from your income; what is left is what you will have to spend on your mortgage.
To live comfortably it is recommended that you do not agree to a mortgage loan in excess of a total debt to income ratio of 43%. Your Mortgage Broker/Lender can let you know what purchase loan amount you qualify for at that ratio. If you do not like the numbers, then you may not be ready to buy a home just yet. Maybe you should wait until you pay off some other debts first. FHA Loan programs allow up to a 55% total debt to income ratio. You can try and stretch your budget out at this larger ratio but the larger monthly payment would definitely take away from your household’s remaining cash after all your bills are paid for the month.
Next thing to do is check your credit, and I assume you should already be doing this if you want to buy that first home soon. In most cases, it is impossible to pay for your house completely in cash, so you will have to borrow funds from a mortgage lender. To qualify for a mortgage loan, you need to have a reasonably good credit score; otherwise, no bank will trust you enough to give you funds. To improve your credit score, pay down credit card debt and if you have none, still continue to pay your bills on time each month. To increase your chances of getting a loan, I will advise you to discontinue using your credit cards for a couple of months before you apply, and not apply for new credit cards, car loans, and other debts, until after you have obtained your loan. Also, to get a loan you will need a lot of documents, so start getting your documentation ready. Obtain W-2 forms from the previous two years, paycheck stubs, 2 years of recent tax returns, profit and loss statements if you own a business.
So you can afford it, you have a reasonably good credit card score, and you’re ready. The next step is to leave the ideas and speculations and make the practical move of getting a pre-approval for a loan. Pre-approval is non-binding and shows the seller that you have things in order and are capable of buying the house, and that little advantage can mean winning or losing the bid on your perfect home. I also suggest you get up and go mortgage shopping even before you look at your first house. Familiarize yourself with the mortgage types; FHA,USDA, VA, Conventional, compare rates, fees and terms of various lenders, and if you can’t do all that yourself, get a mortgage broker that will work for your interest and get you the best deal.
After having your finances settled, the second important aspect is getting a good real estate agent. Find someone you can trust to look out for you and give you the right advice when you need it (and you will). I believe the best way to find this person is by getting recommendations from people you trust, ask friends, family, and coworkers. Also, search for an agent that specializes in the type of house you want to get and consider hiring an agent that is a member of the National Association of Realtors and therefore has to abide by certain ethical codes.
When buying your first home, a good offer can save you a lot of money. To make a good offer, you must put several things into account such as: how long the property has been on the market, the asking price when compared to the value of other houses in the area, and even something like the number of vacant homes in the area can make all the difference. Furthermore, be ready to negotiate strategically, and leave a little room for yourself with your first offer, because it’s most likely not going to be your last.
Also, very importantly, is to make sure your offer includes financial and home inspection contingencies. What this means is you are not bound by the contract if your purchase loan gets unexpectedly denied, or if the house does not have a satisfactory inspection. Without this included in your contract, you might be stuck with buying a house with repair needs that the seller does not agree to fix or lose your earnest money deposit that you put down on the house.
Finally, here are some pitfalls we want you to avoid when buying your first home.
• Be careful of borrowing the full amount the lender offers you. It might overstretch your budget.
• If you plan on staying in the home over 5 years stick to fixed-rate loans as much as possible.
• Never spend all your cash in buying a home. You should still have some rainy day money saved.
• Talk to your potential neighbors before buying the house. You can truly find out how the neighborhood is this way.
Remember, our team of licensed Realtors and Mortgage Brokers here at Buy a New Home in Maryland are here to help you from A-Z in the home buying process. If we can assist you in any way, do not hesitate to give us a call at 443-605-5977. Or simply provide us your Contact Information and we will give you a call.