What Should I Be Doing to Prepare for Buying My First Home?
Are you tired of paying a landlord? Perhaps you are simply tired of unruly neighbors or you feel that buying a home is an expected step in adulthood. Maybe you are tired of those white apartment walls and are ready to express your creativity and explore the latest Pantone colors. Whatever the reasons behind your decision to buy a new home, there are a few questions you should ask yourself to determine whether or not you are prepared for the responsibilities that accompany ownership rights.
There are many things to consider. You should weigh the pros and cons. Are you financially responsible? When you buy your first home, you will no longer be able to call the landlord when the toilet starts leaking. Besides maintenance costs, you will be responsible for paying your property taxes and insurance. If you feel you are ready to take the plunge, here are a few tips that will make the process a bit smoother.
Getting Financially Prepared
What is your housing budget?
We always tell new clients that we want your pet's to be "house-broke", not you. You will be much happier if you stay within your budget and do not over-extend yourself when you purchase your new home. The first step towards financial responsibility is creating a thorough look at your monthly budget. As previously mentioned, owning your own homes mean you will need to add budgetary line items for repairs and maintenance. While rental rates have increased, you should keep in mind that these extra expenses can add up. When you are looking for a home, it is especially important to ask your Realtor about specific maintenance concerns about each potential property you are considering. For this reason, many first time homebuyers choose to purchase new construction homes. These homes come with builder warranties that help to alleviate the concern about unexpected repairs for the first couple of years. (Be sure to inquire about specific warranties.) Again, some builders are better than others, so be sure to ask about which builders have the best reputations for service after the sale.
How does your credit report look?
You have seen the ads on TV offering you a free copy of your credit report. Well, now is the time to take them up on their offer. You need to review your credit bureau file to ensure that everything on it is accurate. If you discover errors, take the time to write bureaus and get things corrected. Your credit history alone can make or break your financing options. Since lenders will look at all three of the credit reporting bureaus' scores, you will need to do this will all three companies. If you have had financial hiccups in the past, you may need a bit of time to get your report cleaned up. Sometimes, you will simply need to show a period of responsibility (one to two years) where all of your bills and loans are paid in a timely fashion. The good news is that a history of timely payments will boost a poor score over time.
Work with a knowledgeable lender to become pre-approved.
A good loan officer will help you determine not only the amount you are financially qualified to borrow, but will also advise you about your various borrowing options. Your Realtor works with lenders on almost every transaction. He or she can assist you by introducing you to someone that will guide you along the way.
After reviewing your credit report, income and expenses, the loan officer or mortgage broker will inform you about how much a lender will be willing to loan you. They will also be able to inform you regarding any special downpayment assistance programs that might be available to you. Once you have determined which type of loan you will secure, they will provide you with a letter that confirms your borrowing eligibility. This letter will let any potential seller know that you are serious about buying their home. The strength of this letter will often make the difference when you make an offer to purchase a home.
What does DTI mean?
Your debt-to-income ratios are utilized by lenders to determine whether you qualify for a mortgage. Typically, lenders consider two different ratios to estimate your ability to afford a home. These are often called front-end and back-end ratios. The front-end ratio represents the maximum allowable monthly housing expense. It compares the total overall housing expenditures (principal, interest, real estate taxes and insurance) with your grss annual income. If you and your significant other are qualifying for the purchase based upon your combined income, they will consider the total combined gross income. Some lenders will allow your total debt to go as high as 41% of your income, and your housing debt to be as much as 32% of your gross income. However, you should determine whether or not you feel comfortable with a payment that high. What 32% of your income will buy varies from city to city, and county to county. Some school districts have a much higher tax rate than others. Cities with ample amounts of retail sales tax often have lower property taxes due to the revenues received from retail sales.
What else should I consider?
Most of the neighborhoods in North Texas are located with a Homeowner's Association. While they get a bad rap for their strict compliance codes, they help to ensure that your neighbor doesn't paint his house Pepto Bismol pink. However, depending upon the amenities of each area, the membership dues for each association vary. Be sure to ask your agent about the Codes, Covenants, and Restrictions as well as the annual cost of living in a particular association. A good rule of thumb is that the greater the amenities, the greater the cost.
We Can Help
You don't need just any agent... I realize that you may have a relative or a parent of a friend that is a Realtor. However, the most important thing is for you to have someone help you that really knows the area where you are wanting to purchase. You need someone that knows what schools are in what district. For example, Frisco, TX is served by four different public school districts: Frisco, Lewisville, Little Elm and Prosper. You also need someone who knows what taxing authorities cover what areas and how choosing your home in one county may dramatically reduce your real estate property tax obligation. You need someone who knows how to maximize the various builder margins. You need someone that knows which builder options to upgrade and which to implement after your purchase. There are so many things that an experienced and knowledgeable Realtor can assist you with. Don't make the mistake of having the wrong representation on one of the largest financial decisions you will ever make. Our real estate team is committed to helping you find the right home, in the best location for the best possible price. We know that when you are informed about all aspects of the transaction, you will enjoy the process. Reducing your stress and making your experience easy is our goal.
Keep your objectives in mind whenever you search for a home. It is easy to get starry eyed when you begin the home search process. While it is an exciting process, try to keep your emotions in check. Start by writing a list of your "must haves" and your "wants." Then, refer to your list often. This will help you to keep your eye on the prize and to not become distracted by the smell of freshly baked cookies when you walk into an open house. Stay focused and be patient. The perfect home is out there, and we can help you find it.
Don't be afraid to have a good real estate lawyer review anything you are concerned about. In Texas, your closing will take place at a title company. The contracts are written on "promulgated" forms which have been written to cover almost every situation that can arise in purchasing a home. A Realtor will help you to complete these forms according to the terms you desire. However, if there is anything you are specifically concerned about, don't hesitate to seek the advise of a real estate attorney. We can recommend several. The title company will complete research on your property to ensure that no outstanding liens exist. Additionally, you should obtain title insurance that will protect your interests in the event that something does arise later. Again, this is all part of the contract that you will sign with the seller when you purchase. I know it sounds confusing, but we can help clear the cobwebs as you go through the process.
Once you find "the one." Now that you have located a home that fits your budget and your wishlist, it is time to make an offer. There may be quite a few new terms that are unfamiliar to you. We can help you navigate the paperwork. Remember, your offer may not be accepted by the seller. Currently, we are experiencing a very strong seller's market. So, we can help you to position the offer so that it has the highest probability of being accepted. Recently, many sellers are receiving multiple offers on homes that are commonly attractive to first time homebuyers. Having a large amount of down payment or having the ability to pay cash does offer you a greater advantage. However, many first time homebuyers are simply not in a strong financial position. For this reason, you may need to consider purchasing a new home. Working with builders can eliminate the competition with other new home buyers.
Don't forget to have an inspection. This is a very important part of the home buying process. A home inspector looks for deficiencies and items that may cause you problems down the road. They know what to look for and have experience with different homes in different areas. They know that some subdivisions have problems with expansive soils. They know about electrical panels that have been recalled and need to be replaced Not having an inspection done could leave you with a home that in the worst case scenario is uninhabitable. Inspections will cost 400 to 500 dollars (and up.) However, this is money well spent. We work with several great inspectors and would be happy to recommend one. Your inspection should be completed within your "option period," so that you can cancel the contract if something major is discovered.
Prior to Closing complete a final walk-through. We will accompany you on this final visit to the home before you sign on the dotted line. This way, you can ensure that the seller has completed any agreed upon repairs and that the home is in the condition we negotiated in the contract.
The home buying process is complicated and involves lots of moving parts. It will be our pleasure to assist you every step of the way. Remember, with us, It's not just business....it's personal!
Contact us for more information about first time home purchasing.