If you are a first time home buyer, you may be overwhelmed by questions. Purchasing a home is a serious financial decision. It’s also a much greater commitment than signing a year-long lease on an apartment. The best thing you can do is become informed before you start the home buying process.
Over time the housing market waxes and wanes and sometimes favors buyers over sellers. That’s a financially smart time to buy. However, most don’t have the luxury of timing their first home purchase around current market conditions. They may be moving for a new job or have a lease that’s ending on their current rental. In this instance, they may have only a few weeks to find a house.
If that’s the situation for you, a little hustle, some research, and a professional real estate agent may be the best recipe for finding your new home. Following are six questions first time home buyers often ask.
Do I need a down payment?
You probably already know that the standard recommended down payment is 20%. That’s what many lenders prefer. This is enough to make your mortgage payments smaller. It will also help you avoid PMI (private mortgage insurance) which is another extra monthly fee that often times has to be paid if a down payment is less than 20%. The other consideration is that sometimes a lower down payment will also mean paying a higher interest rate.
That said, it is possible to buy a home through some lenders with just 10% down. I know that even saving ten percent for a home in a pricey city can be an insurmountable task. That’s why there are some special programs that home buyers can take advantage of if they want to buy a home but can’t come up with 10-20% down. Some of the programs are listed below. Note that programs may change over time so it’s good to do your research so you know what you’ll need before you start you search.
NerdWallet has an online mortgage calculator that will help you determine how much you’ll need for a down payment, home owner’s insurance and property taxes.
There will be fees and closing costs that you will need to pay for in addition to your down payment. Although sometimes it is possible to make a deal and ask the seller to cover part of those closing costs, depending on the market, that may not happen.
What first time home buyer programs can I take advantage of?
Bankrate.com has a comprehensive list of programs for first time home buyers. I have summarized some of the most popular programs.
- There is the FHA loan that allows home buyers with a credit score of 580 or above to purchase a home with a down payment of 3.5%. The good news is that it’s possible to also receive a competitive interest rate and low closing costs with this loan.
- Freddie Mac and Fannie Mae are government-sponsored programs that assist low-income families with mortgage options. A three percent down payment and competitive interest rates are also perks. To learn more check out their HomePath program.
- The VA loan is for veterans, military members or their surviving spouses. There is no down payment and no PMI (private mortgage insurance) required. VA loans also offer competitive interest rates and no credit score is required to receive one of these loans.
- Some cities offer additional local programs for first time home buyers. You may want to research your town’s website for information on grants or housing programs. This is another area where a qualified real estate agency can help inform you about which local programs that you may qualify for.
- The Good Neighbor Next Door is a program for Firefighters, EMT’s, law enforcement employees and K-12 teachers. This program allows buyers the potential to get a fifty percent discount on the home’s price in revitalization areas.
Can I see properties on my own or do I need a real estate agent?
There are generally open houses that you can go see on your own if you are not yet serious about buying. Checking out an open house will give you an opportunity to get to know a new neighborhood.
The real estate agent on site will also be able to answer any questions you might have. The agent wants to sell the home but they understand not all buyers who attend open houses are ready to buy. The good news is that unlike stepping onto a car lot, it’s a low-pressure situation and the agent lets you wander around the home and hands you a flyer, maybe a cookie if you’re lucky.
How will I pay my real estate agent?
In most transactions, there will be a buyer’s agent, the one assisting you and the seller’s agent who is working for the current homeowner. Both agents are paid a small commission after closing. The percentages may vary but are typically three percent of the sale goes to each agent.
How do I know how much house I can afford?
If you’ve checked out a few open houses and driven some neighborhoods you love, you might be ready to take the next step. You’ll need to make a visit to your credit union or bank to get a pre-approval for how much the bank will agree to lend you. It’s ideal to take this step before viewing properties with a real estate agent.
Let’s say you don’t get pre-approval and then you see a home you want to make an offer on quickly. In a hot market, the best homes can sell in the first few days after they’ve been listed. If you don’t have a pre-approval yet, you won’t be able to move as quickly on making an offer on your dream home and may lose the house to someone who was more prepared.
Don’t worry, the pre-approval process is painless. The bank will look at your income and your partner’s income if you are buying with your spouse. They will then let you know the maximum amount you will be loaned.
Just remember that banks will sometimes loan you more than you want to spend on a home. It’s important to plan for the money that will need to go into minor repairs or any remodeling that may need to be done.
Long term home ownership also requires fixing things over time, make sure you have budgeted for that ahead of time. Your best bet is to do your own calculations and decide what you are comfortable spending and stick to that. The bank may offer more but that doesn’t mean you have to take it.
Check out Zillow’s online calculator. It lets you plug in your income, debt and proposed down payment and will show you in an instant what you can afford.
Where can I find homes for sale near me?
There are many sites online that will help you search for homes near you, like Zillow or Trulia. You might also want to drive the neighborhoods that you like and see if there are any for sale signs out.
Once you get serious about your search, you’ll want to have a real estate agent looking for you. They have access to a database of properties for sale that isn’t accessible to the general public. They also can find out about properties that haven’t been listed but are about to be. If it’s a hot seller’s market, this is especially key.
A real estate agent will save you hours of time by asking what your parameters are and doing the search for you. Your agent will ask what you are looking for in terms of price point, number of bedrooms, lot size, etc. and will alert you of listings that match your criteria. Then they can make an appointment to show you the houses you’d like to see.
Your agent can also give you comparables. These are homes that have recently sold in a particular area. These stats will let you know if you are positioned to make a low-ball offer on a home or if you’ll need to come in offering full price or above. Looking at similarly sized homes with prices that are comparable will really give you leverage when it comes time to write up your formal offer.
Buying your first home can be a life-changing experience. What’s amazing is that it is something that is achievable for almost anyone with the help of special programs for first time home buyers. With the assistance of a professional real estate agent and some planning ahead, you can make the choices that are right for you. Before you know it, you’ll be hosting your first house warming party in a home of your own.
Evan Zener is the founder of The Strong|Edge Realty Team. Feel free to get in touch if you need his help finding your dream home or if you have any questions about the current temperature of the real estate market in your area.