National Home Ownership Month

It is June, which means it is also National Home Ownership Month. We’ve shared a lot of tips on buying and selling recently, so today we’ll be breaking down a few things every first-time homebuyer needs to know along with what you should be doing right now to prepare to buy.

KNOW WHAT YOU CAN AFFORD

Homes are a large financial investment, so odds are you’ll need a home loan, aka mortgage, to foot the bill, along with your down payment. So, how do you know what you can really afford?

In general, experts recommend that your house payment (which will include your mortgage, maintenance, taxes) should not exceed 28% of your gross monthly income. So, for example, if your monthly (before-tax) income is $6,000, multiply that by 0.28 and you’ll see that you shouldn’t pay more than $1,680 a month on your home mortgage. For a more accurate assessment, head to a lender for mortgage pre-approval.

DOBI agent, John Lionas, is well-versed in residential real estate and has worked throughout all of Oakland and Western Macomb county. He shares that when it comes to establishing a budget, the Realtor should send a list of lenders he or she has worked well with in the past. The lender will be able to ask the right questions and get the buyer approved up to a certain amount. Likewise, the buyer will be able to ask the lender financial questions, about rates, fees, and the overall lending process. Once the criteria and budget is established and homes have been identified online as for sale and as a possibility to the buyer, the buyer and Realtor can set up a time to see the homes in person.

If saving up for a down payment is a challenge, it may surprise you to know that you don’t always need to save 20% for a down payment. With certain kinds of loans, you can get away with a down payment as low as 3.5% (for FHA loans) or even 0% (USDA loans). You can read more about loan options on our blog here.

GET PRE-APPROVED

A mortgage pre-approval is a letter from a bank stating up to what amount of money you qualify to borrow. On average, it takes 2 days – 2 weeks to get pre-approved. This letter is crucial to help you set your budget and show sellers that you are in good financial standing to purchase a home.

To come up with the pre-approval figure, lenders need to verify your assets, which takes time. The best way to speed this process along is to have all your paperwork at the ready. This includes recent pay stubs, federal tax returns, W-2 forms, bank, and other asset statements, run your credit score and report, proof of employment, and residential history.

We recently sat down with Jon Aucott and Dillon Ruczko, from Superior National Bank, and they shared one of the most important things you can do right now is to get pre-approved. When they say pre-approved, Jon mentions it is important to ensure they run your credit, look at your assets, and your income- so you know exactly what you qualify for.

Keep in mind that most mortgage pre-approval letters come with an expiration date of 30, 60, or 90 days. It’s advisable to negotiate for a 90-day term so you have a buffer should the entire process take longer.

CHOOSE YOUR REAL ESTATE AGENT

Did you know buyers agents are at no cost? Buying a home requires transfer of a deed, title search, and plenty of other paperwork. Plus there’s the home itself—it may look great to you, but what if there’s an unforeseen issues you don’t know about?

Before you make a massive investment, you will want to have a trusted real estate agent by your side to explain the ins and outs of the process. Our agents at DOBI work with buyers at all price points in Southeast Michigan. They are dedicated to listen to you and work proactively– sending you homes as they hit the market to keep you up-to-date on what’s available.

DOBI agent, John Lionas, shares that a buyer can find a reputable Realtor through a referral from someone the buyer trusts like a friend or a colleague. Second, he suggests a buyer call their Realtor and discuss the search criteria. John says, “A buyer might have an idea in mind for what he or she is looking for in a first home and should have the Realtor set up an online search that sends listings directly from the MLS with the most accurate information to the buyer’s email inbox.”

You can search on our website to learn more about our agents here at DOBI, as well as their client reviews, specialties, and more.

Look at Contingencies

Once you find a home you love and make an offer that’s accepted, you may be eager to move in. But you’ll want to take a look and work with your agent to add any contingencies to your contract—which basically means you have the right to back out of the deal if something goes horribly wrong.

The most common contract contingency is the home inspection, which allows you to request a resolution for issues (i.e. a weak foundation or leaky roof) found by a professional. You can also request the seller cover this cost at closing.

Another important first-time home buyer addition: a financing contingency, which gives you the right to back out if the bank doesn’t approve your loan. If they believe you’ll have trouble making a payment, a mortgage lender will not approve your loan. However, if you do have a credit check ran and assets checked, your loan should be approved and ready to go.

You could also consider an appraisal contingency, which lets you back out if the lender who is giving you a loan values the home at less than what you offered. This will mean you will have to come up with money from your own pocket to make up the difference—which can be tough if money is already tight.

STAY POSITIVE AND PREPARE TO COMPROMISE

It’s easy to get caught up in the homebuying process, to find your perfect home. Especially if it’s your first home—you’ve probably dreamed about the ideal house and don’t want to settle for anything less.

But understand that buying a home almost always involves compromise. As a general rule, most buyers prioritize three main things: price, size, and location. But realistically, you can expect to achieve only two of those three things. So you may get a great deal on a home, but it might not be in the best neighborhood. Or you may find a nice-size house in a great neighborhood, but your down payment is a bit higher than you were hoping for. John Lionas shares, that photos and information are helpful, but seeing homes in person with your Realtor is important for getting a true sense of all the factors that might weigh into making a good decision for a first home buyer.

Find what is important to you, and don’t feel too much pressure if you don’t settle on your ‘dream home’ right away. So find something you can live with, grow into, and renovate to your taste.

Sources:
Realtor.com