Buying a home is an exciting moment in anyone’s life, but it comes with its own set of challenges. No one just wakes up in the morning and goes to the market to buy a home, it requires time, patience, and of course Money! The buying process can be confusing but that’s what we have Real Estate Agents for 😉 However, if you are buying a home for the first time, it’s a whole different story.
As a first time house buyer, you probably have a lot of questions. When you’re buying a house for the first time, don’t make any impulsive decisions just because of “Real Estate Trends.” Take your time and make sure you actually buy your dream house within your budget.
We have put together some tips for first time home buyers to help you understand the process so you can get the results you expect.
Have a good credit score
Knowing your credit score is an important step when you are thinking of buying a home. Your mortgage lender will look at your credit score and with that he/she will determine what interest rate you are going to get and other costs involved on your mortgage loan. Remember that if your credit score is high the bank or the lender will consider you as someone that likely will pay the loan consistently and in a timely manner. If your credit score is low, most likely they will consider you a higher risk and will charge you a higher interest rate.
Have a good amount of savings: for down payment and closing costs
You shouldn’t consider buying a house if you don’t have 4 to 6 months of living expenses in your savings account. Here are some costs associated with buying a home for which you’ll need immediate cash for:
The down payment of your new home largely depends on your loan and your credit score. If you have a great credit score, you could be putting a lower down payment and if it’s not too great you may have to pay a larger down payment. We recommend our clients to put 20% down because that will help them avoid paying the Mortgage Insurance Premium (MIP) which is an extra cost that you will have to pay for.
The closing costs include all the costs associated with the buying process like application fees, attorney fees, insurance fees, and much more. Usually these costs are about 2-5% of the price of the house.
Some lenders would also like to see some savings in order to grant you the loan. They want to see that you are well capable of paying your bills in case of an economic slowdown.
Research neighborhoods to find the best fit for you
There are many factors that come in when picking the right neighborhood to buy a house. First things first, what kind of lifestyle do you want? An upscale or a more relaxed one? A suburban style or a more urban lifestyle?. Research about “things to do in the area”, about schools, restaurants, parks, bars, etc. Make sure to look at neighborhoods within your budget.
Determine how much you can afford
Before falling in love with a house, determine how much you can afford. It is recommended that you budget 25% of your monthly take-home income for house related expenses like HOA fees, interest, loan installments, insurance, etc. For example, if you are taking home $5,000 a month, you wanna make sure your house related costs are under $1,250. It is recommended to use a 15 year mortgage with 4% interest rate to calculate your budget for the house.
Check/Bargain around for Mortgage rates to find the best one for you
There are many lenders in the market so make sure you are not taking the first offer you find. Shop around for a better mortgage deal to find the cheapest interest rate and more flexible mortgage options. Compare the interest rates, closing costs, and other details included in each option.
Check out if the lender offers discount points because sometimes, buying one discount point can help you reduce the interest rate by about 0.25% which will bring down the total interest on your loan by a significant amount.
As mentioned before, a stronger application gives you negotiation power so make sure when you apply for a mortgage you credit is great, you have low monthly debt and have a greater down payment if you can.
Pick the right Real Estate Agent
Picking the right Real Estate Agent is important because they are the ones who will be there with you from the first property showing to the closing of your new home! These days there are many websites where you can check the agent’s rating and sales history. Realtor.com and Zillow are good examples for checking the sales history of the agent plus read the reviews, see what the clients are saying about the agent. Check their Google reviews and their social media, check how active they are.
Check all your options for homeowners insurance
When looking to buy a homeowners insurance policy, a lot of the people simply go for the company that they currently use for their car insurance. However, that is not always the best choice. One of the first things you should do is ask around different companies about what kind of coverage each company offers and the prices. You should also make sure that you are asking for discounts, particularly if you have the option to “bundle” with your car or any other insurance. Many times, companies don’t advertise these discounts but they have many options available. Last, but not least you should also look at the customer satisfaction ratings of that company.
Have a great Real Estate Attorney
Real Estate Contracts are usually full of legal jargon and its difficult for an average human to understand all the legal language. In the state of New Jersey, hiring a real estate attorney is recommended by the state Attorney General. Your attorney will explain the legal process of buying a home, will answer any questions that you may have about the contract and will do all the legal negotiations with the seller’s attorney in order to protect you and the purchase of your home. Make sure you hire a “Real Estate Lawyer” and not just any lawyer. There are many details that only Real Estate Attorneys are used to and these professionals know how to resolve issues like home inspections, septic tanks, oil tanks, etc. Having a good Real Estate Attorney would give you that bargaining power when it comes to legal negotiations