First Time Home Buyers Guide

Buying a home is a huge deal! It'll likely be the largest financial transaction of your life, and regardless of how cut-and-dry the process might seem (or not seem), it requires a lot of time and thought so you're making the most informed decisions. Especially now, with interest rates on the rise, it's very important that you look at the big picture and consider a variety of options.

Here are some important things to keep in mind for your home buying journey:

1. Get Pre-Approved First

Before you start seriously considering which house you may want to make an offer on, it's important to know how much you can actually afford.

The very first thing you should do when it's time to seriously shop for a home, is connect with a local mortgage expert to get pre-approved. They'll provide you a letter saying that you qualify for a mortgage up to a certain amount based on your income and credit score. That letter is typically valid for up to 60 days, so make sure you truly want to venture down the home buying path before you get started.

2. Hire a Real Estate Agent

Hiring an expert in the field and can help you schedule home showings, advise you on what to look for and consider when comparing homes, take the lead on negotiations, and ultimately guide you throughout the closing process.

Once you select an agent, it's important to tell them all of your preferences so they are best-equipped to help you find the right home. Things like school districts, home features, proximity to shopping or freeways, commuting distance to work, and so on, are important to make known right off the bat.

3. Visit a Home in Person Before Making an Offer

Before you go making such an expensive investment, it's best to check it out in person - preferably more than once. Whether it's two separate showings, or an open house and a showing, it's best to take more than one look.

4. Take the "Extras" into Account

When considering a home, it's easy to focus on the "big-ticket" items - namely, the asking price, the square footage, the bedroom/bathroom count, etc. You might even be disciplined enough to pay attention to what your monthly payment would be instead of fixating solely on the mortgage interest rate.

But there are additional factors that are important to take into account that ultimately add up, as well. For instance, property taxes and potential HOA fees could potentially add to your monthly expenses. Even something you may take for granted like Wi-Fi signal could vary based on your provider and the location of the home.

5. Make a Competitive Offer, but Keep Priorities in Mind

Buying a home isn't only stressful from a financial standpoint. The competitive nature of making an offer on a home that other people may also be making an offer on can create some real anxiety.

It's important to put your best foot forward reasonably, while also staying true to your pre-approval amount as well as what you're comfortable spending. Real estate agents can often help you maintain a healthy perspective by reassuring you that there are likely more houses out there that will interest you.

After making an offer, don't be surprised to receive a counter-offer from the seller. In this situation, it is also beneficial to work with your agent to determine whether the counter-offer is something you'd be willing to accept.

Often, as part of submitting an offer and having it accepted, you are required to make an earnest money deposit. Also known as a good faith deposit, it shows that you are serious about purchasing the home - essentially used as insurance for the seller in the event that you back out of the deal, causing them to miss out on other interested buyers. It is typically 1% to 3% of the sale price and is held in escrow until the deal is completed, and applied to your down payment or closing costs.

6. Get the Mortgage

Once you and the seller have agreed and they accept your offer, it's time to focus on the mortgage portion of the process - the part that actually secures the home for you (unless you can pay cash).

Here are a few different things to consider:

A)      Type of Mortgage

• 30-year fixed rate: your interest rate remains the same for the duration of the term (30 years). This loan term results in the lowest monthly payments, but you'll pay more in interest over the 30 years.

• 5-year fixed rate: your interest rate remains the same for the duration of the term (15 years instead of 30). In this case, however, your monthly payments are higher in exchange for paying less in interest over the 15 years.

• Adjustable-rate mortgage (ARM): Both the interest rate and monthly payment can change over time. Usually, ARMs come in various terms: 5-year, 7-year or 10-year, meaning that your interest rate will remain the same for that many years before it can fluctuate based on current rates. That means, at the end of the initial term, your rate could become higher or lower. Oftentimes, if you are planning to sell your home within five years, a 5-year or 7-year ARM could be the best deal, as ARMs generally have lower initial interest rates than fixed-rate mortgages.

B)      Down Payment

• Think about how much of a down payment you want to make on a house, as it will determine what your monthly payment is. You can get a 30-year conventional loan for as little as 3% down. You do not need to make a 20% down payment. However, if you put down less than 20%, your lender will charge you monthly mortgage insurance until that level is reached.

C)      Closing Cost

• Closing costs are typically about 2% to 5% of the purchase price of the home, and are separate from your down payment amount. In some instances, you can include closing costs into your loan, but that will lead to a higher interest rate.

Buying a home can be both stressful and exciting. Everyone's experience can be different but, ultimately, it's important to educate yourself about the various steps and considerations of the process beforehand. With the right approach, you can make the best of the experience and set yourself up to really celebrate your big accomplishment and new beginnings!