First Time Home Buyer Guide

First time home buyerMy brother and his wife have been married a little over a year now, and have decided they are ready to take the plunge and purchase their first home. I took a minute to sit down with them to try to help answer some of their questions, and realized just how many questions a first time home buyer can have. I’ve listed a few of the most common questions I have heard over the years below.

What are the advantages of buying vs. renting?

Purchasing a home is an investment. By owning a home, you can deduct the cost of mortgage interest you pay from your taxes (which really adds up since a large chunk of your payment is interest). The mortgage interest isn’t the only thing you can deduct; you can also deduct the property taxes you pay on your home.

There is a chance your home will go up in value over the years, and it’s never a bad thing to have something to call your own. On the downside, it is a big commitment, a 30 year commitment usually. If you are not prepared financially or mentally, you can end up missing payments or even in foreclosure, which is extremely damaging to your credit.

Renting a home gives you flexibility. You have the option to move without the time, worry and cost of selling your home. You also avoid the cost of upkeep that comes with a home. However, with renting, you write the check and that money is gone forever, you are not building equity.

How do I find a Lender?

There are many different options out there when you are looking into financing a home:

  • A Large Bank
  • Credit Union
  • Private Mortgage Company
  • Government Lender

Shopping around for a loan is similar to shopping for any other large purchase. You can save money now and in the long run by taking the time to shop. Different lenders can offer different rates, pricing, and loan programs. Talk with several lenders before you make a decision but select around the time you’re ready to put in an offer.  Typically, a lender will need 3-4 weeks for the loan approval process. Your real estate agent should be familiar with different Lenders in the area and what they may be offering.

How much money will I have to come up with for a down payment?

This question depends on many different variables. How much is the house? What type of financing are you going with? Will the seller contribute any funds towards closing costs?

In general there are 3 things you’ll need to cover:

  1. The earnest money is a deposit you put down to show the seller you have a serious offer.
  2. The closing costs will vary from lender to lender, but they are the costs associated with processing the paperwork, the interest rate you choose, and third party fees.
  3. The down payment can get tricky as different loan programs have different requirements. It is a percentage of the cost of the home that you put down when you close. A conventional loan requires ideally 20%, but a minimum of 5% if you are willing to also pay mortgage insurance.

Will I have mortgage insurance forever?

No. As you make your schedule or additional mortgage payments you will build more equity in your home. Once you have 20% equity in your home, you can review with your lender what steps need to be taken to have it removed.

Besides a mortgage payment, what other costs will I need to consider?

The mortgage payment will usually include the property taxes and homeowners insurance payments as part of your monthly payment, but don’t forget your monthly utilities.

If your rent previously included these, or you have not been responsible for them in the past this may be new for you. You will also be responsible for any wear and tear, updates, or things that need to be fixed with the property. It will be your home!

Owning a home is exciting and fulfilling, but can be overwhelming if you aren’t prepared for it. Do your research; ask your family, friends and neighbors for referrals. It doesn’t have to be the scariest thing you’ve ever done.

By Hollie Keele
Underwriter


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