What to do before you buy your first house.
Being a realtor for coming up on 20 years I have helped a ton of home buyers, especially first time buyers, be able to secure a purchase on their dream home. What I want to do in this guide is give you the a deep understanding of what It actually takes to buy your first home and the things that you should think about so you can have a successful experience. There is a lot of things that you need to be educated on before buying your first house, so in this article I am going to go over every thing!
***I will be posting links at the bottom that will take you to resources that you can use to give you a deeper understanding to certain topics and things we mention throughout this article.
1. Take Stock of Personal Finances.
This is truly the first step you really need to take before even having the conversation of what kind of dream home you are looking for, where you want to live, etc. That is because none of that is even remotely possible unless you have your finances in good standing meaning you have a good debt-to-income ratio, you have money saved in the bank to be able to put a down payment, and your credit score is in good standing.
Let's talk about Debt-to-income ratio and what that means. When looking to purchase your first home you are most likely going to need a loan to purchase that house, unless you are looking to pay all cash. But, lenders are going to look at how much money you make each month vs how much of bills you have to pay each month. For example, if you make $10,000 each month and you have been keeping your bills low and you only pay $2,000 in bills each month your debt to income ratio would be 20% ($2,000 divided by $10,000 = 0.2 or 20%). Lenders prefer to see a debt-to-income ratio smaller than 36%, with no more than 28% of that debt going towards servicing your mortgage. For example, assume your gross income is $4,000 per month. The maximum amount for monthly mortgage-related payments at 28% would be $1,120 ($4,000 x 0.28 = $1,120). Your lender will also look at your total debts, which should not exceed 36%, or in this case, $1,440 ($4,000 x 0.36 = $1,440). In most cases, 43% is the highest ratio a borrower can have and still get a qualified mortgage. Above that, the lender will likely deny the loan application because your monthly expenses for housing and various debts are too high as compared to your income. So, when getting ready to buy a house the first step is to start lowering your monthly bills, this means pay off credit cards, car payments, etc. The better the ratio the more security It will give a lender to want to give you money cause they know you will be able to pay your mortgage and not default.
Second, you need to start saving money for a down payment. The reason you need to have a down payment is the lenders want to protect themselves. Most lenders will require between 5%-20% of a the total price of the home as a down payment (there are a bunch of local and state programs that help first time buyers and will be posted in the resources below for you to look at.) You might see different advertisement for 0% down, but in my opinion that is really not the way to go. First and foremost, a down payment proves that you are financially ready and responsible enough to buy a home. When you purchase a home, you are responsible for all of the maintenance costs related to it. You will need to pay for repairs and homeowners insurance. Saving up for a down payment proves to yourself and the bank that you are in a position to make those sacrifices. In many cases, your mortgage will be higher than the rent you're paying, so your ability to save demonstrates that you are ready for the increase. Another reason to have a down payment is that it protects you in case you need to move and the housing market has dropped. Many people can't sell their homes because they bought them without a down payment when housing prices were at their peak, and now they owe more than their home is worth. There is no pretty way out of this situation. Either you will lose lots of money or you will ruin your credit—or you will do both.Many people in this situation hang onto their homes, hoping that the situation will improve. Using a down payment does not completely prevent this from happening to you, but it does give you a solid buffer against a downturn. Unless your home value falls more than 20%, you are much better off since you started with some equity.
Lastly, you got to have good credit to be able to secure a loan for your future property you are looking to purchase. Let me give you an example of credit; imagine your friend ask you for some money to borrow and you know the last couple times he lent you money he was late to pay you and didn't pay the full amount to you, It would make you less willing to lend him the money. That is what your credit tells the lenders you are working with It shows him what kind of friend you have been to people who have let you borrow money in the past. I won't dive too deep into this one, because I am not a credit expert, but please look at the resources I posted below for how to improve your credit score and what lenders look for exactly on your credit report.
2. Shop Different Mortgage Rates & Lenders
When you go car shopping you might know what type of car you are looking for exactly, but chances are you call a couple different dealerships to see who can offer you the best price out of the door. But, even knowing this It amazes me how many people do not shop around different rates and lenders. This is a huge decision you are making to buy a house and you need to know all the different options available so you are able to make the decision that benefits you the most. According to new research from Freddie Mac, the average borrower could save $1,500 just by getting one extra rate quote when applying for their mortgage. With five quotes, they could save $3,000 or more. In fact, interest rates vary from one-eighth percent to a half-percent from lender to lender. On a $300,000 loan, a half-percent difference means more than $1,000 in savings per year. Imagine saving a $1,000 a year on a 15/30 year mortgage. It adds up and It pays to shop around, so do yourself the favor of looking at different rates.
You also need to save money for "hidden closing costs" you are going to have to pay between 2%-5% of the price of your home. You are going to have home owners insurance, property taxes, etc. This is something to go over with your realtor.
3. Identify What You Are Looking For
So, now you have the financial side of things figured out and you have shopped around for different rates and found the best one that works for you. You now know what you qualify for as far as a loan and you know what price range you are looking for in a house. One of the most important things to do is to identify what you are looking for and where you are looking to live. Once you have an idea of what you are looking for in a house and what the absolute necessities are you are looking for monitor homes in that area. Go on sites like Zillow, Redfin, etc. and find homes similar to what you are looking for and see what they have been selling for in the last 12 months and what they are currently selling for. This will give you a solid idea of what you should pay for a comparable home in that same area and It will allow you to be able to identify market trends. For example, you have been looking at the market for the last 12 months and notice that the price of homes in that area have been decreasing, this allows you to take advantage of an opportunity to getting the house you want at a discount cause of the current market conditions.
4. Find a Local, Trusted, Credited Realtor
Okay! So, now you are ready to start going out into the field and looking at houses in person and seeing what there is available. You are ready to start. The next step is to find a realtor that can get the job done for you and help you find your perfect dream home and assist you in completing the purchase. I know this might sound biased, but It really does matter who you work with. Not all real estate agents are created the same. What I mean by that is not all the agents are going to have the same knowledge of the housing market and have the understanding of what you are looking for and be able to help you find the perfect house for your situation. I would interview multiple agents and you will see for yourself what I mean by not all agents are created the same. You realtor should have great reviews online, they should have great local knowledge, and they should be busy. Someone who is busy means they are a good agent and people trust them to get the job done.
5. Finding the perfect house for you
When making a decision on the perfect house for you there is a couple things you really need to take into consideration. First things first, only buy a house that you know you can afford. This is one of the most important things Is to not over stretch yourself and put yourself in a horrible position financially It is not worth it.
When you are looking at houses and going to open houses you need to ask your agent, the seller, and their agent questions about the the financial things that come with the house. Is their ongoing maintenance associated with the house, what is the cost of utility fees, what is the neighborhood like, etc. You need to know all these things so you know exactly what you are getting yourself into before you purchase. Ask questions about the foundation and structural side of things so you know if there are any major things you need to get taken care of instantly. To follow up with what they say you always, always, always get a home inspection! This is because people want to sell their house and they might not be as honest as you with disclosing the true state of the house and the repairs that are necessary. This does not mean you need to get freaked out about things that pop up its totally normal and In almost all cases sellers will give you a credit to get things fixed that are necessary to get fixed. But, please make a promise to me that you will not buy a house without It getting inspected first.
One piece of advice, do not get too caught up in the superficial side of things. Little blemishes like paint, furniture, etc. things can be worked on. Your lifestyle will change maybe things that do not seem important become important change and vis versa. Do not buy necessarily buy for the ilife you live today.
6. Call Robert Rivera
That is right you got to call me:) haha. I hope I was able to provide a ton of value and education for you in this article to put you in a good position for when you buy your house. I have your email and will be sending you some stuff over the next couple days that will be able to help you even more. I have been in the real estate world for close to 20 years and have helped close millions and millions in transactions. But the things I am most proud of about myself is that through all the reviews I have gotten I have been able to maintain a 5 start Zillow review and that is because I treat my clients like family. I treat them how I would want to be treated if I was buying a house, I understand It is a huge purchase and its nerve racking and that is why I am one of the best in the area at what I do, because I make this daunting process really simple and easy for you.
If you would like to schedule a call with me click below the resources and pick a date and time that works for you and I can answer any questions you have even if you are not ready to buy right now.
Links to resources