If you are looking to buy your first home, there couldn’t be any better time than now. The selection of available homes can’t get much better, interest rates are low, home prices have dropped all over the country and the government is offering an $8,000 federal tax credit for first time buyers who can seal the deal before December ’09.
On top of all those incentives listed above, first time buyers also have the added benefit of not having to get rid of a home that has lost value.
Here’s the bottom line, if you have steady income, stable job, savings and you plan to stay in one place for several years; you should consider moving into a more permanent address.
Now, whether you are the buyer or you’re helping your children through the process of purchasing their home, there are still a number of things that need to be taken into consideration.
Buying a home can be an overwhelming task. Especially with the huge number of homes and options available due to the current economic crisis – foreclosures and short sales – just to name a couple.
If you are thinking of buying your first home, here are several things you might need to know:
As previously stated, the selection of homes has never been larger than it has in the last couple of years, prices on homes have dropped and mortgage interest rates are low. There are also the tax advantages: you are able to deduct the cost of your mortgage loan interest and property taxes. Plus, the federal stimulus bill offers a tax credit of $8,000 for first time home buyers who purchase a home before December 1, 2009. Home builders and industry professionals are currently asking that Congress extend this deadline. The term first time home buyer as defined by the government is, a person not having owned a primary residence in three years.
There are always risks involved in purchasing a home. As we have all witnessed in the last couple years, property values don’t immediately go back up. They can even decline further than what they currently are. Keeping this in mind, if you have concerns about your employment, losing your income, or if you anticipate moving in the next few years, buying a home might be too large a commitment right now.
Before you start looking at homes, you have to know what you can afford. You’ll need to go through a loan pre-approval process and obtain a loan status report. The loan status report is required to make a formal offer on a home. The report will tell you your price ceiling and top interest rate. You should always compare lenders’ loan rates and fees.
When you approach a lender, there are some items and information that they’ll need. You should bring two years of tax statements, two to six months of bank statements, and at least a month’s worth of pay stubs to even start the approval process. It would be a good idea to bring information relative to the assets owned by you, such as stocks and bonds. Make sure that you know how much you owe in credit card debt.
When looking to purchase a home, what you qualify for isn’t what you can always easily afford. You should always take into account all your expenses and debts to establish a monthly payment you can actually afford. One guideline that many try to fellow is that you shouldn’t spend more on a home than two-and-a-half times your annual household income.
When purchasing a new home, deciding how much of the purchase price you’re going to pay for the down payment is an important thing to consider. You will need at least three-and-a-half to five percent of the purchase price for a down payment, but paying twenty percent would be ideal. Paying twenty percent should also give you a better loan rate and it will keep you from having to pay mortgage insurance, which can cost as much as $50 a month for every $100,000 financed.
There are additional fees after the down payment that can add thousands to the total cost of the property. Final closing costs on a property typically add up to two to five percent of the purchase price. It is a common practice to ask the seller to pay part of, or all of, the closing costs, but they can decline to pay anything. You’ll need to include moving costs, possible overlapping mortgage payments in case your mortgage payments start before your rent payments end and $300 to $500 for a home inspection.
Your mortgage payment is composed of many different payments, property taxes, homeowner’s insurance, sometimes mortgage insurance, often homeowners association fees – all these fees are in addition to the interest and principle you are paying on the home loan itself. These additional fees can add up to hundreds every month, so make sure you have a full understanding of everything you will owe before you even consider making an offer.
You should get assistance from a licensed real estate agent. A good agent can walk you through every step of the process. They can show you homes that match your wants and needs and help you formulate and place an offer on a property. They can help you understand the inspection report, help get fixes that you want the seller to have done and generally just help make the process run smoother. There are usually no out of pocket expenses for a real estate agent’s help; their fee of about three percent of the sale price usually comes from the seller’s agent.
There are other considerations besides pricing, such as finding the right home for you. Once a real estate agent is found, and a price is established, the location of your home is a huge factor. A real estate agent can often help with this. You will need to narrow your search by finding the specific community or area you want to live in. Then you will have to find the type of home you want in that area, including item such as number of bedrooms and baths, square footage of the home, yard size and accessory requirements.
Choosing between buying a new home or a resale will often come down to where you choose to live. There are advantages to both options. Newer homes usually have a longer warranty, smaller number of maintenance costs, often are more energy-efficient and contain more modern household fixtures, floor plans, and amenities. Resale homes are in established neighborhoods, include mature landscaping and have architectural features that you won’t easily find in newer homes.
Before deciding on buying a home, you should check out the school district, the local crime rate, and the surrounding property values. You should also drive by the house at different times during the day to get a feel for the neighborhood.
Keep in mind that there are other expenses associated with a home than just the down payment and closing costs. There are new expenses such as landscaping, and furnishing. Utility bills will often be higher. Because of this, you should find out the monthly average for heating and cooling before you buy. A first time buyer would be wise to have enough in their savings to be able to pay at least three months of mortgage payments in case of emergency.
Getting a home inspection is a necessity. An inspection will detect roofing and structural problems that can cost thousands to fix. Buyers have ten calendar days after an offer is accepted to have the property inspected. If the home inspector finds significant problems that could cost a large amount of money, the buyer could back out of the offer, or ask the seller to fix the problems or refund the cost of repairs before closing.
After the inspection, the loan rate and paperwork will need to be finalized with your lender, arrangements to transfer the down payment amount and closing costs to the title company will have to be made. If final fixes were requested, you are going to have to do a final walk-through to ensure that the repairs were made. You will need to transfer the utilities into your name and you will need to secure homeowners insurance. Homeowners insurance is usually bundled into mortgage payment.
At closing you’ll go to the title company to sign a large amount of documents. Make sure you bring a photo ID for the signing. The actual signing takes about an hour and the buyer and seller do not always have to be present at the signing table at the same time. The seller will usually sign after the buyer. Once the title company receives the down payment, closing costs and funds from the lender, the deed is then recorded in the new owner’s name.
Here is some more information regarding the first time home buyer tax credit. The American Recovery Reinvestment Act includes a tax credit for first time home buyers who close on a home between January 1, and December 1, 2009. The credit amounts to ten percent of the home purchase price, up to $8,000, and is available to anyone who has not owned a primary residence in three years. Home buyers are allowed a full credit if they have a modified adjusted gross income of up to $75,000 if they are single and $150,000 if they are married and filing jointly. The credit is reduced for individuals with a modified adjusted gross income of up to $95,000 if they are single and $170,000 if they are married and file jointly. Those who have a modified adjusted gross income higher than those listed are not eligible for the tax credit.