First Time Home Buyer's Guide
You can't troll through the TV lineup too far without seeing someone either buying a home or fixing one up. Yes, buying a house is part of the American dream and the opportunity to do so is alive and well in Baldwin County.
Did you know that (according to the National Association of Realtors) of all the people in the country that bought a home last year, 33% were first time home buyers? Incredible! So, if you've been kicking around the idea of buying your very first home, you're not alone and this guide will walk you through each step of the way.
The Realtors at IXL Real Estate Eastern Shore are at the top of their game and dedicated to assisting you through the entire process.
So let's go.......
Get Your Finances In Order
In today's digital world, it's so easy to get caught up in going online to look at homes. It seems that you can find anything within 2 seconds flat! With that being said, you'll do yourself a big favor by figuring out your finances first, then go nuts looking at properties. Why? Our "eyes are always going to be bigger than our stomachs" when it comes to buying a home.
Figure Out How Much You Can Afford
Most advisors will tell you that your monthly housing costs shouldn't be no more than 25%-30% of what you bring home so you'll need to come up with that number first. Using this strategy, if you make $5,000/month, your total housing costs should be around $1,250. Now, in Baldwin County there are a ton of options for homes in this price range. As a matter of fact, Daphne and Foley have a very low price per square foot (on average) making it very feasible for the first time home buyer to reach their goal of home ownership.
There are many mortgage calculators online but a real easy way to find one is to just do a simple Google search. You'll plug in a figure along with using the current interest rate and it will tell you what the monthly cost will be. Beware though, these calculators only give you the principal and interest payment. They do not include taxes and insurance.
As an example, I just did this myself....Here's the screenshot:
Google "mortgage calculator", type in a figure, and out pops your monthly payment for principal and interest. $946 isn't bad for a $200,000 loan but don't forget, you still need to figure in taxes and insurance. However, Alabama has the lowest property taxes in the country and your insurance will probably be around $150/month for this example. A $200,000 home would easily put you in a safe category if you wanted to stay under $1,250/month.
To give you an idea of what's available, Lake Forest of Daphne is a great example of homes that are for sale in this price range.
How Much Money Will You Need
Many first time buyers don't have a ton of cash laying around but they will need some to buy their first home. This cash will go toward a down payment, closing costs, and inspections.
With that being said, there are programs and even negotiating tactics that can enable the first time home buyer to purchase without that much out of pocket. For instance, depending on your circumstances, you may be able to qualify for a "low to no down payment" mortgage program. They are out there! You can also take advantage of the VA Loan if you're a veteran. Also, if you need to keep more cash in the bank, your IXL Realtor can negotiate with the seller to have some or all of your closing costs paid for you.
Let's say that you can get a 100% loan and have the seller pay your closing costs, you will still need some money for the home inspection, other possible inspections, and the appraisal. Take the time that you need before looking at homes to save as much money as you possibly can.
Work on Your Credit Score
As you probably already know, your credit score plays a vital role in not only getting a loan but also in how much your monthly payment will be. Quite simply, the higher your score, the lower your interest rate. The lower your interest rate, the lower your payment.
This image gives you a good idea about how your credit score can effect how much you pay each month. Here are some tips to improving your score:
- Check your score and look over your report. There may be items that are negatively effecting you that can be removed.
- Pay on time of course
- Do what you can to reduce the amount of debt that you have. You want to improve your debt to income ratio.
- Don't try to get too many new accounts too fast.
Shop For Your New Home
This is the fun part! Now that you know exactly what you can afford and what to budget for, it's time to find your new place.
Work with a Realtor
Of course you will be itching to go online to look at homes (and you probably already have) but now is the perfect time to start working with a Realtor. There are numerous articles written about why you should use a real estate agent when buying a home but in a nutshell, it just makes sense. Your IXL Real Estate agent will work with you to:
- find your new home
- schedule all appointments
- write the offer
- negotiate with the seller
- handle inspections
- communicate with the lender and title company
- see you through to closing
The best part is........as a buyer, it doesn't cost you anything! Yes, that's right. You get full representation by a professional who will look after your best interests and it won't cost you a dime. Sellers pay all commissions.
Determine Your Needs and Wants
I always like to tell first time home buyers to make a list of things that they "have to have" in their new house and things that "would be nice to have". One of our goals is to find you a house that can deliver everything that you need and most of what you want. But, by having a list, you have a good visual to go by if you need to compromise a little.
For instance, if you need to be in the Fairhope school district and want a pool. You may need to compromise on the pool if it doesn't work with your budget.
Set Up the Search
After determining yours needs and wants, get with your agent to set up a saved search. Please use the site that you're on right now to search for homes. You'll find that this site is very user friendly and provides of ton of useful information. However, you should also have your agent create a "saved search" with your exact criteria. You'll love it and it will save you a lot of time. Here's a screenshot of what it looks like:
By using your search criteria, you'll only have to look at properties that match what you want and not sift through hundreds of listings that don't.
As you narrow down the list of the homes that you want to see, your Realtor will continue to work for you by setting up all of the appointments, going with you on the tours, and advising you about the property.
Contract to Closing
When you have found "the one", it's time to write your offer. If you have followed this guide, you've done everything right so far. You stayed on budget, you've figured out exactly what you need, you've partnered with an IXL Realtor, and you've picked the perfect house. Now you have to solidify the deal.......
Analysis of the Property
The property may look perfect but you need to figure out how it's priced. Well, actually you don't have to do this, your agent does. Your Realtor has the tools and expertise to find out if the home is priced right, too high, or priced to sell. Whatever the case may be, the main job of your Realtor is look after your best interests and this involves getting you the best price with the best terms.
When writing the offer, your agent will work to save you every penny and get you the terms that benefit you the most.
Inspections and Contingencies
A contingency is an action that must take place in order for something else to be completed. For instance, a home inspection is a contingency to your purchase agreement. If you don't like the results of the inspection or you and the seller can't come to an agreement on necessary repairs, you can leave the transaction (as long as you're in the time frame allowed).
There will be a number of clauses, disclaimers, and contingencies in the contract that your agent will orchestrate that include: the home inspection, termite/moisture inspection, appraisal, and more. All of these along with their deadlines will be managed by your agent on your behalf.
It's been a journey of preparing yourself and exploring your options. You have reached the goal line and you're ready to close on your new property and no longer be a first time home buyer. On closing day, you'll meet with your agent at the title company or attorney's office to finalize all of the paperwork with your signatures and get the keys to your new home.
Along with your excitement, be sure to bring with your driver's license and any funds (certified check) that are needed to close on your home. Closing is fairly simple and will last about a half hour. You'll be signing documents that explain every penny that's going into the sale of the home as well as your mortgage and other legal paperwork.
As a first time home buyer, you're not alone. Your agent at IXL Real Estate Eastern Shore will be your confidant and advisor. Utilize this site often and please don't hesitate to contact your agent with any questions about a particular home, the community, or the home buying process.