Are You Ready to Buy Your First Home?

If you have never purchased a home before, the decisions and process can seem daunting.  In this article, the first in a series of three, we will give a general overview of the process and important considerations as you explore home ownership.  Because the purchase of property is governed by laws, usually at the state and municipal level, our discussion will be general, and you should consult with professionals who are familiar with real estate law and other technical matters applicable to your specific circumstances.

Let’s take a look at the first four areas to consider as you seek to purchase a home.

How Long Will You Live in the Home?

How long you plan on living in a home is an important part of the decision to buy because of the one-time costs that occur when you buy and sell property.  Those costs can run into the tens of thousands of dollars. If you plan on being in a home for many years, spreading those costs over a long period of time is reasonable, but buying and then selling—and potentially buying again—in a short period of time can be costly. 

Knowing how long you might be in a home can also be helpful in evaluating your mortgage options.  If you plan on making this your forever home, locking in a fixed rate mortgage for 30 years can be wise.  But if you see yourself selling over a shorter period, you may be able to find better rates and terms with a shorter-term mortgage, or one with a variable rate.

Setting Your Budget

The price of a home is the number that gets the most emphasis, but unless you are paying cash (lucky you!) you need to consider two areas closely.  First the initial costs of the purchase that you will need in cash, which includes your down payment, loan, title and other fees.  Next consider the regular and periodic payments you have to make including your mortgage, taxes, insurance, utilities and maintenance.   Do not underestimate the cost of maintenance on a home; it is wise to include savings for maintenance in your monthly budget.

Create a budget before starting to look for a home so you have a realistic picture of what you can afford before you fall in love with something beyond your means.  If you are working with a realtor, be clear with them about your budget so they can show you homes in your price range.

Choosing to Work with a Realtor

Purchasing a home can be complex. While many people choose to be do-it-yourselfers, you should be aware of the role a realtor can play if you choose to use one.  Realtors generally represent either the buyer or the seller but may not wish to represent both since that creates a conflict of interest.  If you hire a realtor as a buyer, you are hiring someone with an ethical and legal obligation to represent you and your interests.  If you are not represented by a realtor, but the seller is, know that the realtor may be helpful, but their obligation is to the seller. Some realtors assess a small retainer fee as a buyer’s agent, but their services most of the time are paid for by the seller as a percentage of the sale price of the home. In addition to showing you homes to purchase, your realtor will guide and manage the purchase process for you and can serve as a referral source for home inspectors, attorneys, and mortgage bankers. 

Obtaining a Mortgage

Your monthly mortgage payments and the costs associated with obtaining the mortgage will be the primary costs associated with your home, so it pays to get the best terms you can.  You can start with your own bank or credit union, but you should compare rates and costs with multiple lenders.  You may also want to consider working with a mortgage broker.  Brokers work with multiple lenders and can help you explore a wider selection of products or find a lender that is willing to work with you if you have unique needs.  In the competitive real estate market, we are experiencing, you will want to consider preapproval for a mortgage.  This involves completing a mortgage application, sharing your financial information with a mortgage company, who will also do a credit check.  If you are preapproved, you will receive a letter from the lender noting your preapproval and the maximum amount they would lend you.  It is not a commitment to lend, which is contingent upon a specific property, but it demonstrates to a seller that you can afford a property and can support the decision to accept a purchase offer from you.

Watch for part two in this series in the next issue of Tomorrow.