Over the years I have worked with countless first time home buyers who are obviously new to the home buying process. I always give them a version of this advice on our first meeting It helps them be more informed and find the best home for them.
The Cost Of Homeownership is More Than The Mortgage
First time home buyers, especially those who are living in rental homes, forget to calculate the total cost of homeownership. I take the time to work with them to set a realistic budget based on the PITIR number. This approach ensures that they are buying a home they can comfortably afford.
Principal: This is the cost of the mortgage every month.
Insurance: I remind them that their mortgage lender requires that they secure and maintain homeowner insurance as part of the terms of their mortgage.
Taxes: I recommend that they escrow the property insurance as part of their monthly mortgage payment. It prevents a ‘surprise tax bill’ twice a year. Just remember to update that escrow to reflect their true tax bill.
Reserves: Furnaces break, and roofs leak eventually. I strongly encourage my first time home buyers set up a reserve fund to anticipate the costs of home maintenance.
Get Prequalified First, Search Second
As a practice I insist that home buyers get prequalified before we being their home search. There are a number of reasons for this that apply to first time home buyers in particular. The prequalification conversation is such an important part of the property buying process it has to happen first before the search begin.
If you don’t know how much you can afford, how do you know what price range to look in?
Your time is valuable! Let’s focus in on the real contenders
Don’t fall in love with a home you cannot afford!
Sellers expect a prequalification letter with your offer. Let’s have everything we need to submit an offer up front!
Hire a Qualified Buyers Agent
Hiring a qualified buyers again is critical to a successful home search for countless reasons. In Cincinnati there is no cost to the buyer for the agent’s service, and a good buyer’s agent can save you thousands of dollars over the course of a transaction. Her are just a few reasons:
Buyer agents are professionals who know the market and the real values of homes. They can do the value analysis for you and give you independent advice.
The seller agent you met at the open house works for the seller – not for you. His job is to get the highest price for his client. If you like that house secure your own representation to help you with an offer.
Buyer agents have lots of resources to help you after the sale. They have contractor names and can help you navigate things like setting up utilities and transferring services.
The best buyer agents act as guides as well as sounding boards. This is the biggest purchase of your life and they can help you through it – ensuring that you make your best possible choice.
Putting all of Your Savings into the Down Payment
Part of the home buying process is managing your cash flow, and first time homeowners are always eager to use all of their savings for their down payment. Most often this is to avoid PMI (mortgage insurance) which increases their monthly amount. I remind them of the important reasons to hang onto some of that cash, and that PMI is not permanent and often ends within 2 years based on appreciation and loan pay-down.
Here are a few reasons to hold onto that cash:
If you want to make some updates or upgrades you’ll need some of that money.
Always have a reserve fund! You own a home and home’s need maintenance.
If something happens to your income you have cash to pay your bills.
No New Loans Before Closing!
I always remind home buyers that taking out a loan before their closing is complete is a dangerous proposition. Lenders are always calculating loan risk, and part of that is the monthly cash flow of borrowers. If you take out a loan and incur a new monthly payment before you close on your home a lender may think that you can no longer afford your mortgage and cancel your loan just before closing.
Remember – no new loans and no new lines of credit. Avoid opening up that department store charge account while you are shopping for new furniture and accessories for you new home. That could red flag your loan as well.
Great Advice for All Home Buyers
New and seasoned home buyers make these mistakes, and in calling them to your attention I hope that you will avoid them in the future. If you are looking to buy or sell a home please contact me – I would like to learn more about you, what you are looking for, and help you buy your next, or first, home.
At The Alison Moss Group, Cincinnati is more than a city to us–it’s our hometown. Since launching in 2008, our clients have depended upon us to lead them through the home buying and selling journey. We are the go-to resource for all of your needs before, during and after the sale of your home.