About two years ago, the housing market was booming virtually everywhere in the United States. Buyers were engaging in bidding wars and sellers were getting offers above the asking price. Today, the market has softened a bit, making the dream of home ownership possible for more Americans. But how to go about finding your first home? And how much should it cost?
Finding a trustworthy and competent real estate agent
Chances are, you already know someone in the real estate business who is itching to help you purchase your first home. Before automatically deciding to use this person, be sure you talk to other people who have also done done business with him/her. Just because someone is your friend, doesn’t mean they will make a good real estate agent. A good real estate agent knows the market and has your best interests at heart. A good agent won’t pressure you into buying something out of your price range to earn a larger commission, nor will he/she pressure you to make a decision before you are ready.
Getting pre-approved for a loan
You’ll need to find a loan officer who will pre-approve you for a loan. Most sellers won’t consider your offer without a pre-approval letter from a respected mortgage banking company. Choose your loan officer and mortgage company not only on the interest rate and points, but also on the level of service. During the buying processes, it’s imperative that all your paperwork is in order and completed in a timely fashion. Simply choosing a loan officer based on a low interest rate could backfire. Your real estate agent can probably recommend you a loan officer, but be sure to speak with at least two before making your decision.
Based on your income, credit score and outstanding debt, you will be pre-approved for a particular loan amount. Do not buy a home for this amount! The lender will approve you for as much money as you can possibly afford, because they want to make money on the interest. If you purchase a home for the amount of your maximum approval level, you will probably be eating Ramen noodles for dinner every night and you won’t be able to purchase any new furniture.
Determining your actual price range
Your actual price range should be based on the estimated monthly mortgage payment. Think about how much money you are currently paying in rent, and how much more you could comfortably afford. Based on that number, have your lender calculate the price of the home that this monthly payment would allow you to buy.
Finding the “right” home
It’s true that purchasing real estate is a financial decision and a major investment. Probably the largest investment that you will ever make. However, it’s important that you don’t lose sight of the fact that you are buying a home– the place you will sleep in every night. It’s important that you like the home you buy– the location, the style, the layout, and the size. Some first-time buyers sacrifice quality because they think that they have found a property that will make a great investment. But if you’re not content with how the house feels, then it’s not worth making such an investment.
Keep in mind the approximate location, size, age, and price range of the home you want. Give these criteria to your real estate agent and he/she will provide you with the listings that fit.
There are many kinds of loans available today, but the one generating the most buzz is “Interest Only’. Simply put, an interest only mortgage is a loan where you are not paying for any of the principal in your monthly payments. You’re just paying interest to the mortgage company. The benefit is a significantly lower monthly payment and a large tax deduction. The risk is that you are not building any equity in your home, so that when you sell it you won’t make as much money. If the value of the home decreases, then you will actually lose money. It’s typically not recommended for first-time buyers to do an interest-only loan. Primarily because they typically don’t make a large enough down payment to build any real equity.
Talk to your loan officer about the best type of mortgage for your financial situation. Do research on-line and consult with friends.
Buying your first home is a large step. It can be somewhat of a risk, but if you play your cards right, you will end up with a home you love, take pride in, and can comfortably afford.