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Home Buying 101: What First-Time Home Buyers Need to Know

March 3, 2022

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Home Buying 101: What First-Time Home Buyers Need to Know

Buying a home is a huge deal! It’ll likely be the largest financial transaction of your life, and regardless of how cut-and-dry the process might seem (or not seem), it requires a lot of time and thought so you’re making the most informed decisions. Especially now, with interest rates on the rise, it’s very important that you look at the big picture and consider a variety of options.

Here are some important things to keep in mind for your home buying journey:

  1. Get Pre-Approved First

Browsing homes online for fun is one thing, but before you start seriously considering which house you may want to make an offer on, it’s important to know how much you can actually afford.

It doesn’t do you any good to fall in love with a $350,000 house if you can only afford a $250,000 house. It creates a lot of wasted time for real estate agents and sellers, let alone the disappointment you’d feel.

The very first thing you should do when it’s time to seriously shop for a home, is connect with a local mortgage expert to get pre-approved. They’ll provide you a letter saying that you qualify for a mortgage up to a certain amount based on your income and credit score. That letter is typically valid for up to 60 days, so make sure you truly want to venture down the home buying path before you get started.

  1. Hire a Real Estate Agent

It’s not necessary to hire an agent, but it’s definitely recommended. They’re experts in the field and can help you schedule home showings, advise you on what to look for and consider when comparing homes, take the lead on negotiations, and ultimately guide you throughout the closing process. At UMortgage, we have strong relationships with some of the most supportive and thorough real estate agents that can make your home buying experience a breeze.

Once you select an agent, it’s important to tell them all of your preferences so they are best-equipped to help you find the right home. Things like school districts, home features, proximity to shopping or freeways, commuting distance to work, and so on, are important to make known right off the bat.

  1. Visit a Home in Person Before Making an Offer

Before you go making such an expensive investment, it’s best to check it out in person – preferably more than once. Whether it’s two separate showings, or an open house and a showing, it’s best to take more than one look. Better yet, bring your agent with you (the presence of a licensed agent is required for private showings, anyway).

On one hand, it’s much better to get an in-person feel for the home instead of relying on online photos and descriptions. Beyond that, taking multiple trips gives you the opportunity to pay attention or look for something you may have missed the first time around. It’s easy to fall in love with the overall house in one visit, but fail to notice a crack in the wall or an old tree that leans a little too much for your liking and you could be paying for it later.

  1. Take the “Extras” into Account

When considering a home, it’s easy to focus on the “big-ticket” items – namely, the asking price, the square footage, the bedroom/bathroom count, etc. You might even be disciplined enough to pay attention to what your monthly payment would be instead of fixating solely on the mortgage interest rate.

But there are additional factors that are important to take into account that ultimately add up, as well. For instance, property taxes and potential HOA fees could potentially add to your monthly expenses. Even something you may take for granted like Wi-Fi signal could vary based on your provider and the location of the home.

  1. Make a Competitive Offer, but Keep Priorities in Mind

Buying a home isn’t only stressful from a financial standpoint. The competitive nature of making an offer on a home that other people may also be making an offer on can create some real anxiety. It hurts to fall in love with a home and make a competitive offer, only to lose out on the home to someone else.

It’s important to put your best foot forward reasonably, while also staying true to your pre-approval amount as well as what you’re comfortable spending. Real estate agents can often help you maintain a healthy perspective by reassuring you that there are likely more houses out there that will interest you.

After making an offer, don’t be surprised to receive a counter-offer from the seller. In this situation, it is also beneficial to work with your agent to determine whether the counter-offer is something you’d be willing to accept.

Often, as part of submitting an offer and having it accepted, you are required to make an earnest money deposit. Also known as a good faith deposit, it shows that you are serious about purchasing the home – essentially used as insurance for the seller in the event that you back out of the deal, causing them to miss out on other interested buyers. It is typically 1% to 3% of the sale price and is held in escrow until the deal is completed, and applied to your down payment or closing costs.

  1. Get the Mortgage

Once you and the seller have agreed and they accept your offer, it’s time to focus on the mortgage portion of the process – the part that actually secures the home for you (unless you can pay cash).

You can conveniently use the lender that you got a pre-approval from, but it isn’t necessary. The most important thing you can do when getting a mortgage - similar to as you did when choosing a home - is shopping among multiple options. There are many different mortgage lenders out there, all of which offer a variety of different interest rates, products and fees. A 30-year fixed rate at one lender might cost you significantly more in closing costs than a 30-year fixed rate at another lender. Likewise, one lender might be able to provide you with a lower interest rate than another - or qualify you for a loan that another lender wouldn’t approve, based on your financial situation. The experts at UMortgage can shop around using its nationwide network of lending partners to find you the lowest rates available. 

 Here are a few different things to consider:

A)      Type of Mortgage

• 30-year fixed rate: your interest rate remains the same for the duration of the term (30 years). This loan term results in the lowest monthly payments, but you’ll pay more in interest over the 30 years.

• 5-year fixed rate: your interest rate remains the same for the duration of the term (15 years instead of 30). In this case, however, your monthly payments are higher in exchange for paying less in interest over the 15 years.

• Adjustable-rate mortgage (ARM): Both the interest rate and monthly payment can change over time. Usually, ARMs come in various terms: 5-year, 7-year or 10-year, meaning that your interest rate will remain the same for that many years before it can fluctuate based on current rates. That means, at the end of the initial term, your rate could become higher or lower. Oftentimes, if you are planning to sell your home within five years, a 5-year or 7-year ARM could be the best deal, as ARMs generally have lower initial interest rates than fixed-rate mortgages.

B)      Down Payment

• Think about how much of a down payment you want to make on a house, as it will determine what your monthly payment is. You can get a 30-year conventional loan for as little as 3% down. You do not need to make a 20% down payment. However, if you put down less than 20%, your lender will charge you monthly mortgage insurance until that level is reached.

C)      Closing Cost

• Closing costs are typically about 2% to 5% of the purchase price of the home, and are separate from your down payment amount. In some instances, you can include closing costs into your loan, but that will lead to a higher interest rate.

Buying a home can be both stressful and exciting. Everyone’s experience can be different but, ultimately, it’s important to educate yourself about the various steps and considerations of the process beforehand. With the right approach, you can make the best of the experience and set yourself up to really celebrate your big accomplishment and new beginnings!

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