So here’s the scoop. Brittany and I have both been on the hunt to buy our very first homes. Being that neither of us have done this before we both started taking different approaches. As we continue to search for our right place right time homes, each of us learn something new everyday. It’s funny how we both ended up home buying at the same time. We both quit our jobs the same day, started new jobs the same week and now we are trying to buy homes in the same month! Knowing us we will probably get engaged the same time, but I digress.
Here are a few tips I’ve learned as a twenty-something first time home buyer.
- GET PRE-APPROVED – A lot of real estate agents will ask you right of the bat whether you have been pre-approved. After all they want to make sure you are a serious buyer. When you do get a pre-approved be sure to keep an agents copy handy to flash at your agent when you start viewing homes. If you have been approved for less than what you were expecting, ask if you can have a pre-approval notice without a price listed, not all lenders will do this but it does not hurt to ask. That way you can look at homes a bit out of your price range and try to haggle down.
- CONSIDER ALL OPTIONS – Looking for a great mortgage rate is NOT a one stop shop. Be sure to apply to a few different places. But don’t limit yourself to just your average bank. Be sure to try loan sites such as Quicken Loans and local credit unions.
- HIT UP YOUR HOME STATE – Do some research on your home state financing. For example, Illinois offers down payment assistance for first time home buyers. They give you up to $7000 to help in your down payment, pending your qualification. If you’re an Illinois resident be sure to visit www.IHDA.org. Not only will it tell you what you qualify for and how to obtain it, it gives you a list of bank/loan references to contact who work with the Illinois Housing Development Authority.
- DIG & GET REAL – First off, if you’re going to get approved you have to prove you have the money. I would prepare to have to the following documents ready: Last 30 days paystubs, last 60 days bank statements, 401k/Stock Investment statements, last three years W-2’s and a list of all your assets (including your car). Secondly, look at your finances from a real perspective. Keep in mind that lenders base approvals of how long you have been at your job, what your credit score is and most importantly your DEBT TO INCOME RATIO, (capitalized because it’s that important). That means everything from credit cards to student loans. No matter what you owe, they consider your monthly payments and not what you actually pay. Showing a consistent salary is key, so if the majority of your income is bonuses and commission, be prepared to show at least two years of steady commission and or bonus checks. Otherwise, it won’t be considered part of your salary and thus brings your approval amount down. Consider the 28/36 rule. Your monthly housing cost should NOT exceed 28% of your income and your total amount of debt should NOT exceed 36% of your monthly income.
- CONSIDER THOSE CLOSEST TO YOU – Your friends and family are the first people you ask for help and so if you run into issues with financing remember to keep them in the back of your mind. That’s not to say you should rely on them but you never know what trust you have in your name that your Grandmother started when you were five that you never knew about. If you want to buy a home to remodel and then sell, your friends and family might want to invest. You never know!
Get Schooled on Mortgages
- MORTGAGE RATES – Find out the best rates for your state. Rates vary from year to year and state to state. Do some research of your own. Ask other home buyers what rate they got and what is average for your home state.
- MORTGAGE TYPES – If you don’t know the different types of mortgage there are time to get educated! Below is a helpful chart that differentiates the most common mortgages types.
Get Your Price Limits
- KNOW YOUR HOME COST LIMITS – Stop looking at houses listed at $300,000 if you have only been approved for $150,00. I know they are move -in ready and have granite countertops and you think maybe the price will come down because it’s a one car garage – but that’s never the case. Home buying is not a benefit of the doubt game. Be realistic and look at homes within at least $30,000 of your price range. The housing market is on the bounce back, so listing price is harder to get down these days.
- KNOW YOUR TAX COST LIMITS – Don’t forget that part of your monthly household payments include your property taxes and trust me your lender will factor that into your loan. The best way to prepare is pick out the towns you would ideally like to live in and see what the taxes were last year. If you want to keep the taxes low, look for towns with more businesses. Taxes that the town brings in from things like mega malls, casino’s and other attractions usually keep a lower tax rate for home owners.
- PLAN FOR UPDATES – Don’t assume you will find your perfect home for cheaper than you thought and not have to make upgrades. There’s nothing wrong with getting a fixer upper as long as you have the time and money to make it into your ideal home. Luckily, my man is in construction and specializes in home remodeling so our ideal home is something that needs work. However, if you’re not handy and your man isn’t and you don’t have any construction friends, add remodeling costs to your home buying budget. The good news here is that some states offer grants for home renovations. In some cases they offer up to $10,000 to spend on home upgrades. The best part is, the loan can be forgiven over time!
- PLAN FOR LITTLE THINGS – When you do find a neighborhood within your price range, keep your eyes open for hidden fees. Things like garbage/recycling fees, forest preserve parking passes, water rights (if near a body of water), landscaping fees (yes some towns will charge you if you chop down a tree on your lawn) and of course neighborhood fees. Attached or detached garage, that can cost or save you believe it or not. Don’t forget your appraisal fees (necessary to be sure you are paying what the home is worth), home inspection fees and closing costs (which are easily negotiable).
Get Your Physical Limits
- HOME EXPANSION & AMENITIES – If you buy a small house with room to add on, read up on your zoning laws. For instance, a few years ago my boyfriend purchased a lake house with the hopes of expanding onto the lot. But, zoning laws in that town required that the residence be no more that 10 feet away from the well property. Well maybe not 10 feet, I can’t remember the exact number but the point is the city shut it down and so no sir on the home expansion. So if you want to build onto your house, see how much is allowed first and what is required. Also if you’re adding things like a pool, know that it comes with extra cash in insurance and taxes. Adding more space and amenities can cost you a bit and there’s no way to guarantee you will get your money back when you sell the home so choose add-on’s wisely!
- LOCATION IS KEY – Have a bad knee? Look for a single level ranch style home to avoid steps. Can’t afford to trade in your car for more fuel efficient wheels? Don’t buy a house too far from your work. Have a dog who loves to jet off for no reason? Don’t buy a house off a major roadway. Have a car without four wheel drive and live in a climate with slick icy winters? Avoid steep driveways. Knowing what you NEED and what you WANT is very important when it comes to finding your home. Think of your physical needs first and then work from there.
This is just the tip of the iceberg when it comes to home buying. And while it is incredibly stressful and can often leave you hopeless, always keep an open mind. You never know what house you will fall in love with. It’s easy to get excited when looking at homes and searching new areas and that’s great. But remember – be realistic.
Start your searches on one of the many home buying sites.
Zillow.com – Is the most user friendly by far! It alerts you on new homes based on your search and has a downloadable app, but it’s very inaccurate. If you find a home on that site, be sure to search elsewhere.
Realtor.com – The best place for accurate home listings and costs.
Trulia.com – Almost always provides images and great information but requires you to be a member in order to use the mobile site.
More Sites include:
Hubzu.com (Foreclosure site)
Happy House Hunting!