Are you thinking about buying your first home?
There are so many advantages to home ownership...
- A fixed rate mortgage makes your housing costs more predictable and stable. No more yearly rent increases!
- As your home increases in value and you pay down your mortgage your equity will grow. This is a great wealth building tool!
- You may save on your income taxes if you are able to take advantage of the mortgage interest and property tax deductions.
- The pride of home ownership! There's just something about owning your own home. You can make it your own without having to ask the landlord if you can change paint colors. You'll also feel more connected to your community and begin to put down roots. This may be the most valuable advantage of them all!
But...Can I afford to buy my first home?
This part can be confusing and overwhelming to many as they start to think about the home buying process. Here are answers to a few common questions...
How much money will I need for a down payment?
Many people think that they will need 20% of the purchase price for a down payment. That's simply not the case. There are programs available for qualified buyers that require No Money Down! I can help you find out if you're eligible for one of those programs. If not, FHA loans are very popular with first time home buyers. FHA loans only require a 3.5% down payment. That's $7,000 down for a $200,000 home purchase (this can be a gift from a family member). FHA is also more lenient on credit scoring and debt to income ratios than conventional loans.
What are closing costs and pre-paid items and how much money do I need for those?
Closing costs are the fees and charges related to getting your transaction closed. These include things such as closing attorney fees, title insurance, recording fees, lender fees, appraisal fee, lot survey, etc.
Pre-paid items include property taxes, home owner's insurance, and pre-paid interest.
These items typically run around 2-3% of the loan amount as a rule of thumb. However, each situation is different depending on the lender and the loan program. Many times some or all of the closing costs and pre-paid items can be negotiated into the deal to be paid by the seller so that you only have to come up with the down payment funds for closing.
Can I afford the monthly payment?
The monthly payment may be more affordable than you think. If you purchase a $200,000 home using FHA financing with the minimum 3.5% down payment ($7,000), your payment would be around $1,300 per month. This is based on a 5% interest rate (5.815% APR) and includes principal, interest, mortgage insurance, taxes and home owner's insurance. This payment is just an example. The actual payment will vary based on prevailing interest rates at the time you are buying, the cost of your homeowner's insurance, and the property tax rate in the community you choose.
Earnest Money...What the heck is that?
Earnest money is "good faith" money that accompanies an offer to purchase. It's a deposit that communicates to the seller that you are serious about buying the home. Earnest money is negotiable just like any other terms of the offer. However, $1,000 is a common amount for earnest money in the typical first time buyer price range in our local market. The check will typically be made out to the listing agency and will be deposited once the terms of the contract are finalized and signed by all parties. This money is protected by any contingencies in the contract for things such as home inspection, appraised value, ability to obtain financing, etc. This money will be credited back to the buyer at closing reducing the amount needed on closing day.
Help! Where should I start?
Finding an experienced and caring Realtor to help you is a great place to start. Yes...I said experienced. The home buying process is complex with many details to navigate. Do you really want your home purchase to be a training exercise for an inexperienced real estate agent? A full time, seasoned professional can provide answers to your questions and advice based on knowledge gained from hundreds of closed transactions in the local area. How much will this level of expertise cost you? Not a dime! The seller pays the commission.
Your Realtor can also help you find a reputable, local mortgage lender to help you get pre-approved for your home loan. This is an important step. By getting pre-approved you'll be able to move forward with confidence and you'll know what price range to focus on to keep your payment within your comfort zone. You'll completely eliminate the stress of falling in love with a home that you can't afford.
I'm a big fan of using a local lender. Typically the local lenders can match or beat terms available from online or out of state lenders. In addition, using a local lender keeps money in our local economy and supports local families. As a bonus, you'll gain a trusted advisor that you can consult with, in person if needed, now and in the future when you have questions about buying or refinancing. There's definitely value in relationships!
Contact me today with your questions or just to discuss your situation and come up with a plan. I have over 20 years of experience in our local market. I can help you get started and guide you through the entire process making sure you understand every detail. You don't have to figure it out on your own. Whether you're just thinking about buying or you are ready to start looking today...give me a call and let's get do this together!
Ready to take a peak at what's on the market right now?
Follow the links below to see homes on the market in each area below $200,000...