What to expect when purchasing your first home.
We love to work with first time homebuyers because as much as we love to continue developing our education in the real estate realm, we also love to teach others about how they can make smart decisions when purchasing property. Here is a little glimpse into the process we take you through so you can feel confident in us helping to find your first home.
Are You Ready to Buy?
1. Search the selling prices of homes in the area you wish to live: This will give you a good idea when you are looking at mortgage costs.
Be sure to include the following in your calculations:
- Taxes (be aware of special taxing district areas as they can have significantly higher taxes than surrounding neighborhoods)
- Homeowners Insurance
- Mortgage Insurance (PMI)
3. Determine what you will pay in closing costs: Closing costs are the fees applied to the purchase of a new home and home loan. In the state of Colorado, closing costs are most often paid for by the buyer, but be sure to talk to your real estate agent and mortgage lender to confirm. Typically home buyers will pay 2-5% of the purchase price of their home in closing costs.
4. Look at your budget: Fannie Mae recommends that no more than 28% of your income should go towards your housing. If you go more than this you can risk going house poor. You also need to be aware of the amount of cash you be required to put down on top of closing costs. For example, conventional loans typically require at least 20% of the purchase price. Talk to one of our recommended mortgage lenders to understand what you will be required to put down in cash.
5. Look at the pig picture of home ownership: Owning a home and home ownership costs are more than just your monthly mortgage payment. You need to also consider maintenance costs and any unexpected costs associated with maintaining your home.
Preparing For the House Hunt
1. Examine credit: Get a free annual credit report and examine it for error or unresolved issues. If you find errors on your credit, contact the credit reporting bureau to get it resolved.
2. Get documents in order: When you contact a mortgage lender, in order to provide you with a complete and accurate estimate for a home loan they will most likely need the following paperwork for all persons who will be on the loan:
- Pay stubs
- Bank account statements
- Tax returns for the past two years
3. Get pre-approved with a pre-approval letter from your lender: Different lenders will be able to provide you with different home loan packages, so be sure to apply to multiple lenders to determine who is the right fit for your financial needs. Once you have a pre-approval letter from your lender you'll have a step up when bargaining with sellers in the house hunt. It is also important to know the difference between a pre-qualification letter and a pre-approval letter. If you are serious about buying be sure to get a pre-approval letter, which means that the lender actually runs your credit and conditionally approves you to buy a home up to a certain amount. A pre-qualification letter is only based on stated income and has not gone through the underwriting process.
4. What type of home best suits your needs? Do you need a single family? Or maybe a townhome? There are so many options, so begin determining the type of housing you want to look for. When determining housing types, it is also good to keep in mind re-sale value of different home types. Typically single family homes appreciate at a higher rate that other housing types.
5. What features would be in your ideal home? Make a list of what you are looking for in a home. Don't be afraid to dream but consider that sometimes you have to give up one ammenity in order to gain another. Here are some features to be thinking of:
- Number of beds and baths
- Garage (number of garage spaces)
- Finished basement
- Updated kitchen
- Vaulted ceilings
- Backs up to open space
The House Hunt
1. Search current listings: You will want to be on top of what homes are currently listed and new homes that just hit the market. We also ensure that we stay on top of all new homes that are listed - ask us about getting set up on an auto notification when a new home with your criteria hits the market.
2. Find your home: When you think you've found THE house be sure to consider the age of the roof, furnace and water heater. You can also most often request to see utilities for the home so you can be prepared for those costs and work them into your budget.
3. Make an offer: When you decide on a home, we will work with you to decide on an offer price and present it to the selling agent. If your offer is accepted, you will need to immediately make your earnest money payment.
4. Obtain a home inspection: Even if the house seems like it's in tip-top shape, you don't want to skip having a trained professional inspect the property for safety, quality and the overall condition of your potential new home. You don't want for there to be a big issue with the foundation or plumbing that you are now stuck with. An inspector will carefully comb through the entire property and let you know of any issues they find. This cost is paid for by the buyer.
5. Obtain an appraisal: When you go to buy a home your mortgage lender will want to know if the house you are looking to buy is worth what you are willing to spend on it. A home appraiser gathers comparable information from neighboring homes that recently sold to determine an appraised value of what the home is worth. We are well prepared to work closely with appraisers to ensure that they have a thorough understanding of the local market and come to a reasonable and accurate value for the home. This cost is paid for by the buyer.
6. Close on your new home: You have finally arrived! Come prepared with your driver's license and a hand ready to sign your name a thousand times (okay, maybe not that much, but a bunch!). Congratulations on buying your first home!