Making Smart Choices as a First-Time Home Buyer, Part 1

Maybe the American Dream of owning your own home has been on your mind for a while, or maybe you just found out one of your friends is buying a house.  Whatever it is that gets you into the housing market, there are a few things to consider when buying your first home.

How Much Can You Afford?
The first step is to find out how much home you can afford.  When you talk to a mortgage lender, be prepared with your tax returns, your recent pay stubs and bank statements, and even your W-2’s.  This information helps the lender determine your income, and after running a credit report the lender can tell you how much money you are eligible to borrow.  Should you buy something at the top of your price range?  Maybe, but make sure you are as comfortable as the lender with your payment.  You might want a lower payment to allow you to take that nice vacation, or put more into your retirement account. Ultimately how much you spend is up to you, not your lender or your real estate agent.

What Type of Loan is Best for You?
There are more loan products out there than you ever imagined.  There are fixed rate loans, adjustable rate loans, down payment assistance programs, no down payment loans, conventional loans, FHA loans, VA loans, and the list goes on.  Which one is right for you?  Your mortgage lender can help you figure that out.  Determining factors for the loan type you end up using include your credit score, your debt to income ratio, your income, the property location, and even whether you have served in the military.  Don’t think that you will need 20% down because there are a lot of options for down payment amounts, starting as low as 3%.  Find a good mortgage lender and have them tell you what your options are.  Only then can you find the mortgage that is right for you.

This is my dream house.
This is my dream house.

A Dose of Reality
Have you ever watched that reality TV show where the host takes the buyers to their dream home?  They are shown a home in the perfect location with every amenity the buyers could have imagined.  The home is beautiful and staged to perfection.  When told the price, the buyer’s hopes are dashed when they discover that the home is twice or three times what they can afford.  From there they go on to look at homes in need of major renovations.  You know, the quintessential “fixer upper”.  Who really wants that?  Not the buyers, but to get everything they want the host tells them it’s their only option. Reality is often somewhere in between.

Is this my reality?

Few first-time home buyers can afford to buy the home of their dreams, so it is important to sit down and write of list of your must-haves and your wants.  There are some issues that may be non-negotiable.  That may be a school district, or proximity to work.  There are some things that would be nice but not necessary, such as a pool or extra garage space.  Figure out your non-negotiable issues up front, before you even start looking for a home.  And decide your maximum budget before looking and stick with it.

Now, start your search online.  Why not call a real estate agent immediately?  You will probably save you and your agent time if you do a little research online before getting into the car.  You can

see what the homes in certain neighborhoods are selling for.  You can get an idea of the condition or age of homes in your price range.  You can get a dose of reality before you ever leave the comfort of your living room.  Having reasonable expectations can help make the home buying process easier and less stressful.  And believe me, that is what you and your agent are going to want.

Check back in a couple of days and I will have part two posted.  Trust me, you won’t want to miss it.