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Tips for First Time Homebuyers
We work with first-time homebuyers every day at Capp Realty Company. The process can sometimes seem overwhelming, but we are here to help you each step of the way and make sure you realize your dream. Our agents are trained to help you from the starting line. We can help you fix your credit report, apply for the right type of loan, explain the benefits of a lease/purchase or rent to own property, and much more. Even if the process takes a long time, we are here for you and we can get you into a home. Contact one of our sales associates and trained Realtors® for more information.
There are, however, some things you can do on your own to get you in the best position to purchase. We have prepared a short list of things you can do to make the process easier.
1. Start by checking the prices of homes in the neighborhood(s) you are interested in to see what they have sold for. Some buyers start by looking at home prices in a real estate magazine or the newspaper and get discouraged. The fact is, that is the price that the home was listed for, which is not always the final price the home sells for. For a better idea of what you will actually pay, search Zillow.com or Trulia.com for the neighborhoods you like and see what homes in the area have sold for recently. Keep in mind that a sale from 2010 or 2011 is not going to be a good indicator of what the house would sell for in today's market. These sites also have features that can show you the size of average lots and more. Both of these websites even have mobile apps for your Android or iPhone, so you can do research on the go!
2. Find out what your total monthly housing cost would be, including taxes and homeowners insurance. Keep in mind that real estate taxes in New Jersey tend to be higher than the national average, so you want to make note of that before using any generic payment calculator. To get a feel for the maximum amount you should spend, including taxes and insurance, use the home affordability calculator. In some areas, what you'll pay for your taxes and insurance can almost double your mortgage payment.
To get an idea of how much you'll pay in insurance, pick a property in the area where you want to live and make a call to a local insurance agent for an estimate. You can also use an online quote estimator. You won't be obligated to get the insurance, but you'll have a good idea of what you'll pay if you buy. For an idea of what you'll pay in taxes, Zillow.com publishes property-tax information for homes all over our area. Just remember that exemptions and the intricacies of local tax law can create differences between what a homeowner is currently paying and what you can expect to pay as the new homeowner. Homes are also periodically reassessed and the tax amount could even go down, depending on conditions.
3. Talk to one of our agents about the real-estate climate in the neighborhood or parts of town you are interested in. The local conditions matter. Does research support the idea that prices will go up, or that prices will continue falling? Do they think the area has hit bottom and prices will begin to rise soon? This is much more top of mind because of the falling real estate prices during the “great recession”. While no agent can guarantee a rise, or a fall, in housing prices – the outlook for the real estate market has definitely gotten brighter and many homes are at historically low prices, making it a good time to make a purchase. You and your agent can discuss the different scenarios and how that factors in to your homebuying plan.
4. Make sure you are ready for the amount of time it may take. Home buying is many small steps, and it can take a month or a whole year to find a house, make an offer, get a mortgage, inspect the property and close the deal. The first step in your search will be to choose a good agent. Good real estate agents will listen to your wants and needs and arrange to show only those homes that fit your particular situation. Your agent should preview homes before showing them to you as well. You can, and should, do research on your own to find out what things you are looking for, what style of home appeals to you, what school districts serve your area, the local taxes and more. Also begin the bank qualifying process by speaking to a mortgage officer, preferably at your local bank, where you have an established relationship.
5. See what you can realistically afford. You can use the mortgage calculator at the bottom of this page to see what your payment would be. Look at your budget and determine how a house fits into it. A government housing agency, Fannie Mae, recommends that buyers spend NO MORE THAN 28% of their income on housing costs. That isn't just the house payment - that includes taxes, property insurance, utilities and more. Go much past 30% and you risk becoming "house poor". That is when a person or family owns a nice home, but doesn't have the money to do much else. If your mortgage payment, interest, insurance, utilities and maintenance costs are 50% of your total income or more, you won't be able to make it over the long term and it is highly unlikely you could qualify for a mortgage.
6. Get a handle on your credit. One of the most frustrating things in finding a home is not getting qualified for a mortgage. It is a good idea to request a copy of your credit report from all three credit bureaus (Experian, TransUnion and Equifax). You can do that through the companies themselves or through a website that collects them all for you. Based on your credit score, you can get an idea of what sort of loan and interest rate you may qualify for. If you aren't happy with your score, make steps to clean up your credit and raise your score. Don't make any other major purchases, including a car. Pay down high interest credit card balances. Close store credit cards you don't need anymore. Make sure you don't miss any payments and pay more than the minimum payment - even if just by $5. All of these things can positively impact your credit score and save you thousands of dollars in interest on a mortgage.
7. 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 loan origination fees charged by the lender in order to get a loan, title and settlement fees, taxes and items that you will have to pay in advance, such as homeowners insurance or the fees for a homeowners association. One of our agents can explain typical closing costs in a bit more detail when you get closer to making the next step. A good rule of thumb is that the closing costs will be similar to one year's taxes.
8. Remember to look at the big picture. While buying a house is a great way to get you on a good financial footing, maintaining your investment can be labor-intensive and expensive! When unexpected costs for new appliances, roof repairs, broken windows and plumbing problems crop up, there's no landlord to turn to, and these costs can quickly drain your resources. Plan to put a little money in a savings account specifically for these unknown possibilities so you don't have to charge them to a credit card if, and when, they happen.
So consider whether you're ready for the expense and effort of homeownership before pulling the trigger. We can help you with a credit plan, ideas for saving, how to manage your budget to prepare you to move and so much more. Contact one of our agents today to get you started down the path to home ownership!