Some of the important steps to
homeownership include:
Many first-time homebuyers decide to
buy when they feel ready for a mortgage. But just because they can afford the
mortgage payments doesn't mean they can afford to own a home, says New York
attorney Rafael Castellanos, president of Expert Title Insurance.
"They have an idea of what their
mortgage payment is going to be, but they don't realize there's much more to
it," he says.
Property insurance, taxes, homeowners
association dues, maintenance, and higher electric and water bills are some of
the costs that first-time homebuyers tend to overlook when shopping for a
place.
"Keep in mind property taxes and
insurance have a tendency of going up every year," Castellanos says.
"Even if you can afford it now, ask yourself if you'll be able to afford
the increased costs later."
Even though it's your first home, you
must think of it as a long-term commitment, says Ed Conarchy, a mortgage
planner and investment adviser at Cherry Creek Mortgage in Gurnee, Illinois.
"If you have to switch jobs in a
year or two, and may have to move for the job, you should think twice,"
says Conarchy. "Ideally, you should picture yourself living in that house
for 5 to 7 years."
Home buying doesn't begin with home searching. It begins with a mortgage prequalification -- unless you're lucky to have enough money to pay cash for your first house.
Often, first-time homebuyers "are
afraid to get prequalified," says Steve Anderson, a broker and owner at
Re/Max Benchmark Realty in Las Vegas. They fear the lender may tell them they
don't qualify for a mortgage or they qualify for a loan smaller than expected.
"So they pick a price range out of the sky and say, 'Let's go look for a
house,'" Anderson says.
And that's not how it should be done.
Yes, it's more fun to go look at houses than to sit in a lender's office where
you have to expose your financial situation. But that's a backward approach,
Conarchy says.
"You get preapproved, and then
you find a home," he says. "That way, you'll make a financial
decision versus an emotional decision."
New to the home buying game? You'll need a reputable real estate agent, a good
loan officer or broker, and perhaps a lawyer.
Venturing into this process alone,
without professional help, is not a good idea, says Anderson. While every rule
has its exception, generally, first-time homebuyers should not try to deal
directly with the listing agent, he says.
"If you are getting divorced, are
you going to go to your husband's attorney for help? Of course not," he
says. "Same here. If you go to a listing agent, they are only going to
show you their listings. You must find a buyer's agent to help you."
If you hire an agent without a referral
from friends or family, ask the agent to provide references from previous
buyers. The same goes for loan officers or mortgage brokers.
"It's very hard for first-time
homebuyers because they don't know who they are dealing with," Anderson
says.
It's crucial to find a professional who
will give you "truly independent advice," Conarchy says.
Sometimes that means hiring a lawyer,
says Castellanos.
"You are about to make what is
possibly the largest single investment of your lifetime," Castellanos
says. "You want to make sure it's done right."
Spending all or most of their savings on the down payment and closing costs is
one of the biggest mistakes first-time homebuyers make, Conarchy says.
"Some people scrape all their
money together to make the 20% down payment so they don't have to pay for
mortgage insurance, but they are picking the wrong poison because they are left
with no savings at all," he says.
Homebuyers who put 20% or more down
don't have to pay for mortgage insurance when getting a conventional mortgage.
That's usually translated into substantial savings on the monthly mortgage
payment. But it's not worth the risk of living on the edge, says Conarchy.
"I'd take paying for mortgage
insurance any day over not having money for rainy days," he says.
"Everyone -- especially homeowners -- needs to have a rainy-day
fund."
You have prequalified for a loan. You
found the house you wanted. The contract is signed and the closing is in 30
days. Don't celebrate by financing another big purchase.
Lenders pull credit reports before the
closing to make sure the borrower's financial situation has not changed since
the loan was approved. Any new loans on your credit report can jeopardize the
closing.
Buyers, especially first-timers, often
learn this lesson the hard way.
"They sign the contract and they
want to go buy new furniture for the house or a new car," Anderson says.
"I remember one case where, just before closing, the buyer drove to the
office and said, 'Look at my brand-new car.' I told them, 'You'd better go back
to that dealership.'"
Luckily, the dealership agreed to wait
a couple of days to report the loan to the credit bureaus, he says. Otherwise,
it could have killed the deal.
You've decided to go for it. You know rates are near all-time lows.
Buying a home can be thrilling and
nerve-wracking at the same time, especially for a first-time homebuyer -- it's
difficult to know exactly what to expect. The learning curve can be steep, but
most of the issues can be resolved by doing a little financial homework.
Take these 5 steps to help make the
process go more smoothly.
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