Demystifying the Process of Being a First-Time Homebuyer

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As the winter storms begin to fade and spring is ready to turn the corner, it can only mean one thing: Home buying season is here again.

For many people entering the market, this will be the first time they have purchased a home. The process itself can be incredibly intimidating. There are hundreds of pages of forms to read and sign, hundreds of thousands of dollars to borrow, and countless questions to ask and be answered before making perhaps the biggest decision a person can make in his or her life.

To help, we here at Untied talked to Vinnae DeFeo, Realtor at Keller Williams Realty, Dan Miller, Insurance Agent at State Farm, and Mike Badessa, VP of Mortgage Lending at Guaranteed Rate to help answer some of those big questions.

So, what can first-time homebuyers do to make the process of searching for a home enjoyable instead of stressful?

“Take one step at a time,” said DeFeo. “Consider your finances and get pre-qualified by a mortgage broker. You will be the most comfortable in your home search if you know what you can afford and in what price range you should be looking.”

DeFeo’s advice to get pre-qualified upfront was echoed by Badessa as well. His advice was incredibly practical.

“A lot of people don’t want to get pre-approved until they are ready to buy,” said Badessa. “My advice would be to talk to a lender at least 6 months prior to actively looking for a home and to get a pre-approval and not simply a pre-qualification.  Some banks and lenders are writing pre-qualification letters without even reviewing credit.  A first time homebuyer should talk with a lender who is willing to review their credit with them, send them a copy of the report and make recommendations so that they can make any necessary credit repairs.”

When considering the purchase price of a home, there are numerous factors to consider. In addition to the price of a home, you have to consider homeowners insurance, mortgage rate, taxes, and more.

“A new homeowner purchases a homeowners policy to protect their home in the event their home burns down or a tree falls on the roof during a rain storm,” said Miller. “Some homeowners have to buy PMI or mortgage insurance if they do not put 20% down on the home, which protects the mortgage companies investment. But a new homeowner can’t forget to insure themselves. A mortgage life insurance policy is a policy on your life with a face amount equal to your mortgage that will enable your family to continue living in their home by paying off the mortgage in the event of your death.”

PMI (private mortgage insurance) is something that many first-time homebuyers do not know about. As mentioned by Dan Miller, it is something a homeowner has to buy if the buyer is not capable of paying a 20% downpayment on a home. According to Wikipedia, “typical rates are $55/mo. per $100,000 financed, or as high as $125/mo. for a typical $200,000 loan.”

Private mortgage insurance is a requirement until the homeowner has paid down 20% of the home’s cost.

It is not uncommon for starter homes to have PMI attached to the mortgage but do not fret. A first home is just that: a starter home.

“Remember that your first home may not have all the bells and whistles of your dream home, but should be a home that is within your budget and you can comfortably enjoy as such,” said DeFeo. “I would recommend looking at the big picture as it pertains to your situation. Do not expect your first home to be your ultimate dream home.”

In addition to Realtor.com and Zillow.com, DeFeo recommends “Your First Home: The Proven Path to Home Ownership” by Gary Keller, Dave Jenks, & Jay Papasan as resources for the first-time homebuyer. Miller recommends checking out StateFarm.com as  a great resource to break down all of the coverages and limits that make up your policy. Badessa suggests his site, which contains a variety of e-books targeted at helping homebuyers.

Additionally, we recommend looking at the U.S. Department of Housing and Urban Development‘s website on purchasing a home.

Aside from H.U.D.’s online resources, there are plenty of government programs that can help first-time homebuyers.

“Although there are a variety of programs available, the two most popular programs are conventional and FHA,” said Badessa. “Some people are unaware that they can get conventional financing with as little as 5% down.”

FHA (Federal Housing Administration) mortgages are a helpful way for homebuyers to become homeowners. More information on FHA mortgages can be found here.

“First-time homebuyers should first figure out what program makes the most sense for them,” said Badessa. “Then they should aim to save the down payment amount plus an additional 3% for closing costs. I would also recommend someone try and save an additional amount equal to two months mortgage payments. The ‘extra savings’ is not required but sometimes there are unforeseen expenses after the purchase of a home and spending your last $100 to purchase a home could put a first-time homebuyer in a bad financial position if they don’t have any cushion.”

Some of the questions a homebuyer may have cannot be answered by a book, website or article. If you are deciding between neighborhoods, a move-in ready home or a fixer-upper, or want to find out specifics of certain homes, working with a realtor is advantageous. Realtors can help you answer your questions and provide you with very detailed MLS (Multiple Listing Service) information.

Before consulting with a realtor, take some time to prioritize your list of must-haves and a wish list of amenities that would be nice to have. Not only will this help you answer some of your own questions but it will help define a clearer picture for your realtor so that he/she can find the right fit for you.

If you are in the market for a home, feel free to contact the professionals interviewed for this article. Their contact information is below:

Vinnae DeFeo
Real Estate Professional
Keller Williams Realty
856-321-1212
www.VinnaeDeFeo.com

Dan Miller
State Farm Agent
856-546-0700
www.DanMillerJr.com

Mike Badessa
VP of Mortgage Lending
Guaranteed Rate
609-354-8112
www.guaranteedrate.com/michaelbadessa
NMLS: 128654

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