I am beginning to think about preparing to purchase a home. What is the first thing I should do before looking at homes?

The very first thing you should do is talk with a mortgage professional. Discuss how you get paid as this is important for qualifying for a mortgage (W2 vs 1099). Discuss how much money you have in savings and what you are most comfortable for a monthly payment.

This step will not only inform you on how much you qualify for but prepare your way for owning. You may learn you need to save a little more, pay off something on your credit or put a pre-approval letter in your hand so you can start shopping with confidence and knowledge!

How do I determine my budget for my future home?

The rule of thumb is your housing should be about 31% of your gross (before taxes and deductions) pay. If you earn $45,000 a year, your total housing payment should be around $1,160 a month. Many programs let us go higher than this, but it is a good starting point for discussion.

How do you organize a real estate search?

Once you know what you can afford and are comfortable with it, talk to your Realtor. (S)he will set up a search on the Multiple Listing Search (MLS) for the home that is specific not only to the price, but the neighborhoods you desire, and of course with an emphasis on what is important to you (pool, garage, school districts, etc). My favorite part of this system is that you get an email the second a new home hits the market that fits in your search. In this current market, the first one with a strong offer wins the contract. Be in the know! Of course, you can still search the Realtor.com app from your phone just to see what all is out there! Many Realtors have their own app, ask if your does.

How much money should I expect to spend before being able to move into my home?

There are a few costs out of pocket prior to the closing you should be aware of. First, when you find your perfect home and get into contract to purchase it, you will want to pay for an inspection. I can’t say this strongly enough- do NOT buy a home without a home inspection. First, you need to know what is right and wrong with your home. There is no such thing as a perfect home, but can you handle what is not perfect? If there are foundational, roofing or plumbing issues, those could be very costly matters so better to learn about it up front and decide if you want to continue in the process of buying this home. You may want to walk away and find another home. At the very least, the home inspector can teach you a LOT about your future home. If you can be at the inspection, I encourage it. Next, you pay for the appraisal. The appraisal gives the value based on a professional’s opinion who is unrelated to the transaction. We won’t let you overpay for a home. Nor do you want to! You pay for this at the time of it being ordered, typically as soon as your inspection period is over so towards the start of the transaction. It should range between $450-$500 for an appraisal. Make sure you put aside money for utilities deposits and a moving truck.

Should I just go to my bank for a mortgage or should I work with a mortgage broker?

Of course I am going to be biased because I am a mortgage broker. But I have also worked for a bank. A bank will offer “vanilla” programs and many don’t offer an FHA loan as an option. A bank has a price sheet offered each day for their few loan products and they hope that you “fit” their cookie-cutter guidelines. A broker offers loan programs from dozens and dozens of lenders with all types of variances in what their product offerings are. A broker is going to shop these lenders and find the best rates on a loan program perfectly tailored for you. Brokers get rates wholesale and sell them closer to retail but can typically beat the bank rates, which means savings for you month after month after month on your payment.

What are my loan options?

Loan options are in the hundreds! I will say that for the majority of closed loans, you will most likely fall into a conventional 30 year fixed with as little as 1% down to as much down payment as you would like, an FHA 30 year fixed with at least 3.5% down payment, or another government loan which is 100% financing through a VA loan for those who served in our military or the USDA loan which is for housing in areas that are not highly concentrated.More on the outskirts in what is considered “rural” areas. You could look at adjustable rate mortgages, 10 year, 15 year or 20 year mortgages, but the majority of especially first time) homebuyers are looking at 30 year fixed mortgages. There are LOTS of options on how to handle mortgage insurance (if you put down less than 20% typically there is mortgage insurance) from paying it as part of your monthly payment, or adding it as a lump sum onto you base loan amount or increasing the rate a little and dropping MI altogether. But one thing we can’t do is add closing costs to the loan amount. But you may ask the seller to pay your closing costs at the time you write your offer.

How do you organize a real estate search?

Yes and please do! Your offer on a home you love and want to own is so much more than the offer price and a closing date. There are SO many things you can factor into the negotiations. Anything really! From keeping the washer and dryer in the home, to the seller paying your closing costs, to adding a new roof! A buyer I worked with wrote it into the offer that the seller will replace the roof and the seller agreed with the requirement it is a full price offer. Everyone was satisfied in that negotiation. I asked the sellers of my home to remove the built-ins in the second bedroom that they had converted into an office. They declined but counter-offered with reducing $2000 from the purchase price. That was fine by me! Just be careful, if it is something like furniture, that is considered chattel and has to be written in “at no value” as it cannot be made part of the home purchase with a dollar amount attached to it (it is not “affixed”), your Realtor can explain more about this.

What should you do if you have bad credit but you want to purchase a home?

First step is call your Mortgage Loan Officer. Let’s review your credit report (even if it is one you already have, we can review that together) and create a plan to help improve your credit. Sometimes it requires just getting current and staying current on your bills, or paying off a collection or five. Sometimes it is a need of getting new debt to show your ability to borrow and pay back. But not all debt is created equal so let’s talk about the best type of debt for you to have based on your current lines of credit. Sometimes you need to be referred to a credit repair company and invest some time and money to clean up a past of poor financial decisions. It’s not the end of the world and it shows admirable character for your desire to want to clean things up and improve your credit rating. Your credit affects so much more than getting approved for a home. It can affect your insurance costs, credit card interest rate, auto loan interest rate and much more.

Is it worth it to purchase a home if you only plan to live in it for no more than 5 years?

The short answer is yes. Read on for the “why.” Buying a home allows you the opportunity to build equity. You have to pay for your shelter whether you rent or buy, right? But by purchasing there is a REALLY good chance that you will recuperate your money down and closing costs AND still walk away from the sale of that home with money lining your purse. Real estate values grow. And in case you didn’t know, you get to write off against your Federal income tax the property taxes and the mortgage interest (and in some cases the mortgage insurance) you pay on your home each year. You don’t have housing write-offs on a rental home. I had over $55,000 in equity when I sold my first home 2.5 years after I had purchased it. You can do whatever you want to do with that tax-free (if it’s your primary home when you sell it) money, but I put that down on my next home to keep my mortgage payment low but stepped it up on the kind of house I now lived it. The “step up” house is a great feeling too!

How can I learn to properly maintain my home?

The home inspector can actually teach you A LOT about your house, so if you are able to, then be at the inspection! Learn as much as you can about the inner workings of your new home!

Is it mandatory to get pre-approved from a lender?

Most sellers won’t, by the recommendation of their Realtor, consider an offer without proving the ability to purchase. This requires proof of funds or pre- approval letter to accompany the offer. What if your Realtor invested several weekends showing you properties in the $300,000 price range only to discover you can only afford $200,000. Big letdown for everyone, but also a colossal waste of time.

You will be disappointed in the value of a $200,000 house compared to the beautiful $300,000 homes. If you find the home you love and can’t submit your offer (on a Sunday, right?) without a pre-approval letter, then your lack of preparation becomes somebody else’s emergency. You might miss out on that house as the seller might have an offer coming in from a pre-approved buyer.

What documents should I get together and ready to go?

When you are ready to get pre-approved, there are basic financial documents you need to provide upon request: 2 years tax returns AND W2s/1099s for each year, 2 months bank statements, 30 days pay stubs and a copy of your social security card and driver’s license. More information will be needed once you go into contract, but this should be 85% of what is needed unless you have had a prior divorce, short sale, etc then correlating documentation will be needed.

What are some things you should discuss at the beginning with a loan officer and/or a real estate agent?

If you have had a prior divorce, bankruptcy, foreclosure, short sale, or something along those lines, discuss this up front with your Mortgage Loan Officer. If the funds to close are coming from a gift or retirement account, discuss this as well. If you are still technically married on paper, PLEASE discuss this (Florida is a homestead state and if your future-ex-spouse does not sign the mortgage, you don’t close). If you will have a large deposit that is not employment related, we need a paper trail, so let’s discuss.

What if something breaks?

Talk to your Realtor about a home warranty and having trustworthy go-to’s to call such as a handyman, AC repair, plumber, etc. for the breaks in your life that you can’t handle on your own- hire a TRUSTED and referred professional. I am part of a professional group that has vetted all of the referral sources so if you need a referral to any professional, give me a call!

How do I know if a neighborhood is “safe”?

Look at crime rate through Sheriff’s office website. You can plug in the address of the home you are interested in and see crime statistics. Remember there is no such thing as a crime-free neighborhood, but check out what TYPE of crimes are happening. I also suggest driving through that neighborhood at various times of the day and evening, see who is hanging around, the cars on the street, see if there are there loud parties late and don’t be afraid to go talk to a neighbor and ask! Also consider what is nearby: Is there a bar nearby that might have people stumbling home in front of your place? Are the police and fire department close by in case of an emergency? Is there a school zone out front of the house that will keep you from getting out of your driveway in the morning?

What about the condition of the home?

It is important to ensure you are going to get a few years out of the roof, AC unit, etc. Make sure you interview and hire a GREAT inspector. One that is professionally vetted and referred by your Realtor or mortgage loan superhero. It is imperative to hire based on the kind of work they do and not solely on price. The inspector will share with you the current condition of the home, all of it. Get quotes on repairing the items the inspector suggests you get repaired or replaced. You can always go back and ask the seller to take care of or contribute towards remedying the issue if something major was identified during your inspections. Be careful with a home that has ‘no life’ left on the roof or AC unit as this could put you in the hole $6000+ right away! Remember, everything is negotiable!

What should you take into consideration when determining the monthly costs of owning a home?

In addition to your PITI (total mortgage payment: Principal, Interest, Taxes, Insurance), you want to keep in mind that things break or wear out and you want to have “reserves” for when that happens. Nothing is worse than a leak or a dead water heater with no money to fix! You may have ‘homeowners association’ dues depending on where your home/condo is located. And of course your utilities you pay each month. I also recommend saving 1% of the price of your home each year in a separate savings account, for repairs and maintenance so you aren’t caught off guard. If you own a $200,000 home, work towards putting in savings $2000 a year for your home upkeep.

What if I can’t make my mortgage payment?

Call the loan servicer, who you make your payments to, and explain your situation. You may be able to defer your payments for several months. Consider renting out a room for some extra financial help, even if it is just short term. Ask for help- your family may be able to assist, or maybe your employer can front you some money in advance to help you through a tough time. 35% of your credit score is based on your payment history, so try to create solutions to not be more than 30 days late.

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