Must-Do’s for the First-Time Homebuyer
Are you a first-time home buyer eager to get into the market? Here are a few tasks that will get you into your dream home.
Check the selling prices of comparable homes in your area. Do a quick search of actual multiple listing service, or MLS, listings in your area on a number of websites, including the National Association of Realtors.
Find out what your total monthly housing cost would be, including taxes and homeowners insurance. In some areas, what you’ll pay for your taxes and insurance escrow can almost double your mortgage payment. Many insurance companies will be happy to give you an idea over the phone.
Find out how much you’ll likely pay in closing costs. The upfront cost of settling on your home shouldn’t be overlooked. Closing costs include origination fees charged by the lender, title and settlement fees, taxes and prepaid items like homeowners insurance or homeowners’ association fees.
Look at your budget and determine how a house fits into it. Fannie Mae recommends that buyers spend no more than 28 percent of their income on housing costs. Go much past 30 percent and you risk becoming house poor.
Talk to reputable Realtors in your area about the real estate climate. Do they believe prices will continue falling or do they think your area has hit bottom or will rise soon?
Remember to look at the big picture. While a buying a house is a great way to build wealth, maintaining your investment can be labor-intensive and expensive. When unexpected costs for new appliances, roof repairs and plumbing problems crop up, there’s no landlord to turn to, and these costs can quickly drain your bank account.
Examine your credit. Right now, blemished credit or the inability to make substantial down payment can put the kibosh on your homeownership plans. That’s why it pays to look at your creditworthiness early in the home-buying process. Get your free annual credit report and comb through it for errors and unresolved issues. If you find mistakes, contact the credit reporting bureau to make sure they are corrected. It’s also a good idea to get your FICO score, which will cost you a small fee.
Get your docs in a row. Collect pay stubs, bank account statements, W-2s, tax returns for the last two years, statements from current loans and credit lines, and names and addresses of your landlords for the past two years. Have them ready to show to the lender. This may seem like a lot, but in this age of tight credit, don’t be surprised if your lender needs a lot in the way of documentation.
Find lenders and get preapproved. Getting preapproved for a mortgage helps you bargain from a position of strength when you are house hunting. Unsure where to look? Your Realtor can usually recommend a handful of reputable lenders in the area.
If at first you don’t succeed, try, try … the government? If you can’t find a bank willing to lend to you — and in the current tight credit market, it’s possible you won’t — consider getting an FHA loan. The Federal Housing Administration has a program that insures the mortgages of many first-time homebuyers. As a result of this guarantee, lenders who might otherwise feel queasy about your qualifications will be more inclined to lend to you. As a bonus, the FHA only requires a 3 percent to 3.5 percent down payment from first-time homebuyers. You can find lenders that work with the FHA in communities across the nation.
Courtesy of Bankrate.com