The Final Frontier: First-Time Home Buying Part 3!

house 2

In case you missed them, here are the 2 blogs to read before this one:

https://kelseyatcascofcu.wordpress.com/2013/12/03/no-more-barbie-dreamhouse-first-time-home-buying-part-1/

https://kelseyatcascofcu.wordpress.com/2013/12/16/save-save-save-first-time-home-buying-part-2/

Now that you’re all caught up . . .  you’re going to do it! You’ve checked your credit report. Your job is secure. You’ve been saving every spare penny for months. You’ve been staking out IKEA living room sets on your weekends off. You’re ready. You’re going to buy a house.

What now?

Unfortunately, buying a house isn’t as easy as going to Target and picking one off the shelf. So where do you start? Once again I have turned to my good friend Erik the Mortgage Officer, and he helped me come up with these steps for buying a house. Each person’s experience might be a little different and you might not follow this timeline exactly but this should give you an idea of how the purchase process should go:

  1. Determine Your Must-Haves – Although these things might change as you go through the home-buying process, I recommend having an idea of what you want before you do anything else. Make a list of 4 or 5 things that are important to you such as location, number of bedrooms, or style of house. You might need to refine your “must-haves” when you get approved for a certain dollar amount or when you start to visit homes for sale in your area, but these guidelines will give you some place to start. It’s important to be flexible, but you also don’t want to walk into this process blind; having a visual of the end-goal will help you make important decisions along the way. This step is especially important if you have a partner-in-crime for this purchase – what if your significant other wants a 70’s era one-level ranch when you dream of a three-story Victorian mansion?! It will be better to find this out at the beginning of your home-buying journey when there’s time to negotiate rather than once you’re ready to make an offer on your dream-house and your better-half isn’t on board. Save yourself time – have guidelines in place.
  2. Get Pre-approved – The next step is for you to visit your financial institution and get pre-approved for a mortgage loan. Hopefully, you’re going into that office with your best financial foot forward. Check out my previous blogs for tips on how to get your finances ready to buy a house.When you get approved for a mortgage loan, your financial institution will tell you that you are approved for up to a certain amount. For example, you might be approved for up to $150,000. IMPORTANT: this doesn’t mean you have to use that full amount! It just means that is the maximum limit to your spending. If you find a place for less, then that’s great. A pre-approval is generally good for between 60-90 days. Don’t worry if you haven’t found the right place by the end of this period – there’s no penalty for not buying a house during that time! It won’t negatively affect your credit, it just means you will have to reapply. A good tip: don’t do anything that would change your credit during that 90 day period, like apply for a new credit card or buy a car. You don’t want to think you are approved for a certain amount, find the perfect home, and then find out your credit has changed and you can no longer get a mortgage approved for that amount.
  3. Get a Realtor – Oh, to get a realtor or not to get a realtor? That is the question? There’s a lot of debating out there about whether or not you truly need a realtor to buy a house. But unless you are in the housing business yourself, chances are you could benefit from the help of a professional. Navigating the home-buying process is tough, especially if you are a first-time home-buyer! Why go it alone when you can have someone who has been through the process hundreds of times be your real estate spirit guide? The key is to comparison shop. Look at a lot of different realtors in your area. How long have they been in the business? Do they have any references? Does your mortgage officer have anyone they recommend? You want someone with experience who is familiar with the neighborhood you are looking to buy in and who understands your vision for your first home. You can still look at home-listings in your area and request to see certain properties, but your realtor will be able to make recommendations, as well. This is the stage at which you will actually begin shopping around for your new place. Hopefully with you realtor’s help you will find a house that feels like home and you will be well on your way to Step #4 . . .
  4. Get a Home Inspection – Mortgage-Officer-to-the-Stars Erik, told me that this is one step people commonly skip in an effort to save money. But it’s one of the most important ones. Once you find a place you like and think you are ready to make an offer, GET A HOME INSPECTION! If you don’t, you might end up costing yourself more money in the long run. A home inspection before buying could alert you to major problems in your potential new home that are costly to repair. Would you rather spend $1,000 to get a home inspected before you buy it or move in and find out about a $10,000 mold problem? If the home needs small repairs, you might be able to negotiate with the seller to have them fix it before you buy or get the price decreased. If the house needs a lot of work, you might be better to cross it off your list. Doing an inspection can give you peace of mind that the investment you’re making in a new home is a sound one.
  5. Closing Time – “One last call for alcohol, so finish your whiskey, your beer . . .” If you don’t remember that song, you are too young to buy a house. But in all seriousness, closing is the last and final step of this process. Once you find a place you like, your realtor will work with you to make an official offer on the house. This is where the haggling ensues and is when you realize how glad you are that you have a real estate agent helping you out. More than likely, the seller of your would-be home will make a counter-offer aka they will ask for a little more money than what you want to pay. Since we don’t barter or negotiate price very much in our everyday lives, this process is a tricky one to navigate alone. Your realtor can help you decide whether you make your own counter-offer, accept the seller’s price, or walk away from the sale. If you and the seller can agree upon a final price then they accept your bid, you visit your financial institution to close on your new mortgage loan (hopefully there will be no hiccups there because you were a good boy/girl and didn’t do anything that would affect your credit recently), and then you move into your new place and stay up all night celebrating! Yay for you! You bought a house! If your offer isn’t accepted by the seller, you will have to continue your search. It’s ok to be sad and maybe even cry a little, but dry those tears – there’s plenty of houses out there and you will find the right one for you.

My last and final tip for the first-time home-buyer – Don’t be scared to ask for help! If you were going to take up golf, you’d probably take a lesson or two from a pro. Maybe read a few golfing magazine. Watch some YouTube videos about perfecting your swing. Basically, you’d do some research before you went out there and just started wacking your club at balls. Buying a house is no different. Take advantage of all of the resources out there. Ask friends, family, and co-workers for advice. Reach out to your financial institution. No one expects you to be an expert the first time around and your house-hunting experience will be a lot less stressful and more successful if you have people guiding you in the right direction.

Best of luck to all you first-time house-hunters out there! I’d love to hear about your experiences. Please feel free to leave a comment telling me about your journey to your first home.

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Save, Save, SAVE! First-Time Home-Buying Part 2

Confession: this series of blogs on buying your first home has NOT been easy to write. Want to know why? Because there is SO MUCH INFORMATION to share. Buying a house is just so darn complicated that is not easy to sift through all of the great tips, ideas, and hints out there to compile the best resources for your reading pleasure. But I will not give up! I will break down the multi-step process of home-buying into easily readable, semi-enjoyable narrative quips if it kills me!

I thought that the next post for this series would be a sort of “how-to” series of instructions of how to work your way through the home-buying process. You read the first post, decided you were truly ready and committed to becoming a home-owner, and now you need to know how to do that. So I tried to write a list of things such as “get pre-approved”, “get a realtor”, etc.

But while I was trying to sort all of that out, I realized that the pre-approval step was about 20 times longer than any other. Mainly because I was trying to cram all of this stuff about how much money you might need saved up for a down payment and other closing costs into it. It simply could not be condensed into 2 or 3 quick sentences. Therefore, I have decided to give saving its own post. So here it goes . . .

You will need to save up a lot of money to buy a house. A LOT!!!

Image

Your piggy bank better be FULL when you start looking for homes.

Here’s a quick run-down of the different kinds of expenses associated with buying a house:

EARNEST MONEY OR DEPOSIT – This is a deposit you make on a home when you submit your offer to the seller. It is used to show that you are serious about purchasing the home. In most cases, the earnest deposit is applied to the down payment if/when your offer is accepted. If you were to back out of the sale, you may or may not get these funds back, depending on the terms of your contract.

DOWN PAYMENT – This is a percentage of the total cost of the home that you must pay when you close on the purchase and attend the settlement. In some cases this can be as much as 10-20% of the total cost of the home. If you were purchasing a $200,000 house, that might mean between $20-40,000. In the case of many first-tome home-buyers, the down payment is lowered to between 3-5% which would make a down payment on the same property around $7,000.

CLOSING COSTS – These expenses are any number of additional fees that you might incur during the purchasing process that would not being included in the mortgage financing of your home. They include things like Real Estate Broker Commission/Fees, Appraisal Fees, Title Fees, Inspection Fees, etc. In general, they tend to be around 3-4% of the total cost of buying your home.

As you can see, buying a house is not cheap. Even if you have perfect credit and have shopped around for the lowest mortgage rate possible, you will still need money in the bank before you can make a purchase.

My recommendation? Ask your financial institution for help! Visit your credit union or bank to speak with the mortgage officer. You can get pre-approved for a mortgage without actually committing to buying a house. What it will do is give you an idea of how your credit looks, as well as an estimate of how much house you can afford. Knowing that number will give you an idea of how much money you will need to save for a down payment, closing costs, etc. If you have enough put away to begin the actual house-hunting process – great! Go out there and start hitting up open houses. But if that amount is still a little out of your reach that’s ok, too. Now you have a tangible goal in mind of how much money you will need to save to purchase your first home. Saving is always easier when you have a concrete goal in mind.

Next up . . . the last (hopefully) step to becoming a first-time home-buyer – going out there and actually picking a house! Coming to the Kelsey at Casco Blog soon 🙂

No More Barbie Dreamhouse: First-Time Home-Buying Part 1

A week or two ago I had some friends visit from out of town for my birthday. Sunday morning we went out to brunch; I was casually enjoying some waffles and bacon when my recently engaged friend (CONGRATS! by the way 🙂 ) asked me if I could write a blog about how to buy a house and apply for a mortgage.

A house.

With a mortgage.

With her fiance.

We are NOT. OLD. ENOUGH. FOR. THAT.

A Barbie Dreamhouse is the only home I am interested in mortgaging (especially if it’s the one with the elevator) in the near future, though I think a lot of girls my age probably outgrew those a long time ago.  At 25 my friend and I definitely fit into the “First-Time Home-Buyer” category and are probably ready for homes we can actually live in.

barbie dream house

Once I calmed down enough to actually think about writing this post, I realized how complex of a question she was asking. How the heck do you buy a house? I have shown many a member into our mortgage officer’s office since I started working at the credit union. But other than the fact that he eats a lot of Ramen Noodles while listening to Justin Timberlake, I know absolutely nothing about what our mortgage expert Erik does or how he gets people into their new homes. So he and I chatted and he gave me these tips for first-time home-buyers.

First things first, you should be familiar with the 4 C’s of Credit. These are the main factors that will determine your ability to get a loan.  When you go to a credit union, bank, or mortgage company to get approved for a home loan, these are the things they will consider.

CAPACITY – What is your ability to repay the loan? Do you have a job or another income source? Do you have other debts? Lenders love when you are a Steady Freddy in terms of your income. They are looking to give loans to people who have had the same job for at least 2 years, who are likely to see an increase (even if it’s small, incremental raises) over the next few years, and who are therefore likely to continually be able to make payments.  I know I personally have had 3 different jobs in the last 2.5 years, which isn’t unusual for someone my age, but which doesn’t make me seem very reliable to lenders.  Experimenting with jobs to find your passion is great, but it might mean that your income is inconsistent, you might have to relocate frequently, and it might even mean that some day you won’t be able to make your mortgage payment. Lenders don’t want to stop you from finding your dream job, they just want you to do that before you find your dream home.

CHARACTER – Will you repay the loan? Have you used credit before? Do you pay your bills on time? The Catch-22 of credit is, you have to use it to have it. If you’ve never had a credit card or made a loan payment in your life, you have no credit history and therefore won’t be able to get a loan on your own. Having student loans, car loans, credit card balances, etc. only weigh you down if you have trouble consistently paying off balances and making payments.  If you religiously pay-off your credit card balance each month and make loan payments in full, you are probably in really good shape because you can prove to lenders that you can be depended on to make payments.

COLLATERAL – If you fail to repay your loan, is there something of value that you agree to forfeit? No one wants you to default on your mortgage loan (aka not be able to pay it), especially not your lender. If this unfortunate event were to occur, they want to know that lending you money isn’t a total loss, meaning you have something of value that they can take in place of you paying back the loan. In the case of a mortgage loan, the collateral would be your home.

CAPITAL – What are you worth? Do you have other assets, such as a savings account, car, or certificate of deposit that could be used to repay the debt? Even if you are able to get 100% financing for your mortgage (which means the loan would include 100% of the cost of your home), you will still need a solid nest egg before you are able to buy. Having money in savings means that you have access to funds to pay your mortgage if your income were to become unstable.  It also means that you will able to pay for closing costs (fees for processing the paperwork of your home purchase) and other unexpected expenses in the process of buying your home.  Lastly, it shows that if you were to default on your loan and not make a payment, you have something of value that the lender could use as collateral.

Now that you’re familiar with the general way in which  lenders will assess your credit, figure out the specifics. Visit https://www.annualcreditreport.com for your free annual copy of your credit report. You won’t get your actual credit score number (that costs money) but you will get your credit history from the 3 major reporters: Experian, Transunion, and Equifax. This way you will be able to check the information on your report, dispute any errors, and try to reconcile any unpaid debts you were unaware of. If your credit needs help, you will know before you look to get pre-approved to buy a home and you can give yourself time to improve your credit. Need help understanding the information on your credit report? Visit your financial institution. Here at our credit union we are more than happy to spend a few minutes helping you look through your credit report. Or, check out the “What To Look For” section on annualcreditreport.com. They give some good advice, too.

Last minute check! If I haven’t scared you away from every buying a home with all of my financial mumbo-jumbo, you might just be committed enough to make the big purchase. Here are 2 final questions to ask yourself before you start the actual home-buying process?

1. Why do I want to own my own home? The cliche answer is: because it’s an investment. We all know that renting is a pure expense; you can pay your rent for years but you never actually own the home you live in. Home-ownership is great because there’s an end in sight. Once you pay-off your mortgage, you OWN the house. But why is that important to you? Is it more important than being able to travel abroad a couple times a year? Is it more important than being able to strike out on your own and start a new business any time you get a good idea? We don’t live in the 17th century any more when you had to be a land-owner to be able to vote or do anything cool. Erik said he often gets people in his office applying for a mortgage loan just because they think it’s the “next step after marriage.” Don’t let peer pressure get to you – if you’re happy in your rental that’s ok! If you’re young but dream of leaving your small one-bedroom for a place of your own even though none of your friends are home-owners, that’s fine too! Just be sure you’re buying a home because YOU want to, not because you think it’s what you should be doing.

2. Can you pay for everything going on inside your home?

Once you stop renting, YOU become the landlord. Can you pay to clean your furnace, get new tiling in the bathroom, repair a light fixture, etc. Can you pay to furnish all of your rooms? Your old hand-me-down furniture from your apartment might not look right in your brand new home, but can you pay to get a new couch, kitchen table, beds, bedding, light fixtures, kitchen supplies, chairs, and more all at once? Buying the actual house is one expense, making it liveable is another. If you don’t want to spend a chunk of your paycheck every month at Lowe’s, reconsidering owning your own place might be a good idea. If you’re Mr. Fix-It and can’t wait to decorate, you’re ready for the next step in the home-buying process.

Coming to the KelseyatCascoFCU Blog soon . . . I’m ready to buy a house – WHAT NOW?! In my next blog I will give simple steps and tips for how to get pre-approved for a mortgage loan, how to shop smart, and what to expect at a closing.