5 Tips For First-Time Home Buyers
Take your time and understand your options. This is your money, and you’ve worked hard for it. We are healthcare professionals who have been through it before and want to share what we’ve learned.
Here are five things I wish I knew before I bought my first house
You have a choice in your realtor, lender, and insurance agent
These three professionals are essential to real estate transactions
While you do not pay them money directly, they make money off of your purchase process
Trusting these individuals and knowing that they have your back will make your real estate transaction much smoother and far less stressful
Decide how much money you are comfortable spending monthly to live in your house before talking to a lender
I remember when I was renting or buying, people would say to have your monthly payment (rent or mortgage) be no more than 30% of your monthly income.
The reality is you have to ask yourself what you are comfortable shelling out every month to live in your home
Go through your monthly income and decide on that number
When talking to lenders, ask them what their interest rates are and explain what you are looking to spend monthly. They can tell you what purchase price equates to that amount with the interest rate they’re offering
Compare interest rates with different lenders and ask about loan options for first-time buyers
Interest rates are approximately 8% on a 30-year fixed mortgage at the time of writing this (Winter 2023)
Different interest rates will change how much you pay monthly for your mortgage. The higher the rate, the more you pay in interest.
Different lenders will offer different rates. The lower the rate, the less money in interest you pay each money
It is always good to compare rates across lenders and compare what different lenders can offer you. Call a few, tell them your situation, and see what they can offer, take notes, and compare the differences.
Depending on your situation and if this is your first time buying a home, you may be eligible for specific loan programs to assist with your purchase - ask the lender what they are
Do not feel as though you have to utilize these options, but you want to know what you are eligible for and be able to investigate if they financially make sense for you
Some examples of loan options are Federal Housing Authority (FHA) loans and physician loans
Mortgage lenders can review what they can offer you, what the terms are, what you are required to pay, over what period, etc.
You do not have to give a lender the go-ahead to pull your credit until you’re sure you want to go with the lender
Your mortgage payment is typically composed of principal (the amount you borrowed from the bank), interest (the money the bank is money from you by the money they loaned you), taxes (annual taxes for the property), and insurance (homeowners insurance on the property). The acronym is PITI - principal, interest, taxes, and insurance.
Taxes and insurance are put in an escrow account. Escrow is a place where money is held. You do not have to pay your taxes and insurance to your mortgage lender each month, along with your principal and interest. You can pay for these on your own if you choose. If T&I are not escrowed, you are responsible annually for remembering to produce and deliver your property taxes to the town/city/municipality where you reside and the insurance to your chosen insurance company on time.
Understand how much money you will need to close on the property and know you do not have to put 20% down on your primary residence
Closing on a property involves shelling out a hefty amount of cash
Wherever you purchase the property, the closing costs, which are comprised of a variety of things, will inevitably vary and can be pretty sizable
Have your lender approximate how much money you will need to buy the property, commonly referred to as - total cash needed to close
Get a real understanding of closing costs for the location in which you are buying so you can better understand how much money you will have to produce in a lump sum to purchase the home
You do not have to put 20%
If you do not put down 20%, you will have to pay something called primary mortgage insurance (PMI), which, depending on various factors, may not be that much monthly or maybe a decent chunk of monthly.
Your lender can go through with you your monthly payment with 5, 10, 15, 20, 25, 30% - whatever amount you choose to put down.
Whatever amounts you are considering putting down, have your chosen lender run the numbers for you so you can understand what the monthly payment will be, what each component of the monthly payment is, and what amounts they are
You do not have to buy a house equivalent to the amount that your chosen lender pre-approves you for
Based on a variety of factors, and commonly your employment, income, and credit score, a lender will pre-approve you for a loan at a certain amount
When they pre-approve you, they typically do a credit check, which is a hard check on your credit; as earlier advised, wait until you pick the lender that you want to work with who makes sense rate wish and loan program wise and then give them to go ahead to run the credit when you’re sure
The credit check is typically good with them for 120 days, so if you’re actively searching for a home, even if the first few offers don’t pan out, your pre-approval is usually good with them for approximately four months
The lender will pre-approve you for a certain amount of money they can loan you
The loan you take out is commonly the purchase price of the home minus whatever percentage of the total purchase price you chose to put down
For example, let’s say you want to buy a $300,000 home and put 20%. You will pay $60,000 at the time of closing, which is 20% of the $300,000
Sometimes, that amount a lender pre-approved you for may be more than the amount you are comfortable with spending when you break down the closing cost (cash needed to close) and the monthly payment you will be responsible for
Buy what you are comfortable with paying for, not what you necessarily qualify for if that amount is higher than what you’re comfortable with
If you're interested in this content, check out our educational guides tab and reach out anytime. We are happy to help you on your journey to renting, buying, selling, and investing.
Disclaimer: We are not acting as mortgage lenders, insurance agents, lawyers, or financial advisors. This content is for educational purposes only and is not advice. We will always advise you to consult each professionals regarding your personal situation.