First step to owning a home, or what I advise clients:
Plan, plan, and plan some more.
You are listening and will surely hear about all the offers that exist in the housing market today. Buying a home should be taken very seriously and the impact on your finances. What has driven much of what has happened in the real estate and mortgage business today is not “subprime loans” and whatnot. It is buying a home blindly without understanding the impact and how to manage the finances involved.
If you are considering buying your first home, consider this. How much more is the mortgage payment (including principal, interest, taxes and insurance) More What are the expenses in addition to what you are already spending on utilities, maintenance, etc.? What money are you going to have to spend just to move in and what are you going to have to buy immediately (lawn mower?)
Then once you’ve determined that, figure the difference between that and what you’re currently paying for rent. Take the difference and put it in a savings account. If you can’t do that, it’s a sure sign that you can’t pay your mortgage, keep renting.
Since few, if any, loans are available, determine how much you will need for a down payment. The FHA is 3 ½%, so on a 200,000 purchase you will need $ 7,000. If you save the difference between your rent and your mortgage expenses, how long will it take to have enough for your down payment?
The next thing is to have enough money set aside for emergencies. Emergencies will happen and the last thing you want is to never have the money to pay your mortgage payment. If you don’t have the discipline to save, get in the habit. If you are temporarily out of work (no income) or have an emergency expense, you need to have the resources to cover it without creating more debt (credit cards).
The next thing is, you probably won’t be able to afford the type and size of home your parents have. I bet they started out smaller and with several houses, they made their way. Most likely, you will not buy the house of your dreams, that is, for a later purchase. You want and need something that will provide you with what will meet your needs today. Remember that the average time people stay in a home today is seven to eight years. Unless you absolutely know this is it, you will be here for the next 30 to 40 years, whatever suits your life for the next five to ten years. Be realistic!
The bargains are here. In most markets, housing has practically reached its lows. Do not think that you are going to “negotiate” another amount of money from the list price. If you are dealing with a full-time professional real estate agent, chances are they are very aware of the market and what a home could sell for. Listen to your advisor. If you don’t believe or trust them, find a different one.
Don’t gamble with the interest rate. First of all, if you are looking for a mortgage by calling the lenders and asking what their rate is, you are making a big mistake. Rates change daily and some days by the hour. No one can quote and guarantee a rate. The rate cannot be locked (guaranteed) until you have completed all the necessary paperwork and executed a mutually accepted purchase / sale agreement, complete with a security deposit. So until then a fee cannot be guaranteed. You need to make sure you are dealing with a competent mortgage professional. Check their references and ask to speak with previous clients. They will tell you what to really expect from who you are dealing with. If you can’t get references, do you want to use them as your mortgage broker? The next thing is to lock your rate. In today’s credit environment, don’t gamble with your money trying to save an eighth of a point. You will probably lose. Lock your rate as soon as you can. If you close your loan and later if the rate is substantially lower, you can refinance a rate / term refinance to lower your payments. The FHA has a simplified refinancing program that is inexpensive and does not require a reassessment. The same is true with VA and most current loan products do not have a prepayment penalty. Therefore, you can always refinance to lower your rate and payment at a later time if necessary.
Be responsible; look for true and committed professionals who have your best interests in mind. Be careful what seems too good to be true. Check what they tell you and NEVER sign blank documents.