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13 TIPS FOR FIRST-TIME BUYERS
- Start with realistic goals. It’s alright to know what you want, or even to be a little bit picky, but remember, brand new homes are not synonymous with perfection. Be prepared to let minor flaws go and focus your search on the things that are most important to you.
- Be financially prepared. Make sure everything is in order, financially. You should have enough in savings to cover both down payment and closing costs. Double-check your personal credit reports and keep an organized file of all financial information you might need.
- Know when to, and who to, ask for help. Don’t ask the opinion of everyone you meet. You will end up with as many opinions as there are people to question. Conflicting opinions and advice do more harm than good. Pick a small number of individuals whose advice you trust and only go to them when necessary.
- Secure your initial loan in advance. Before you even begin to look for your new home, discuss options for a pre-qualified mortgage with an experienced lender. Having a loan secured before you begin negotiations will lend you credibility and increase your options.
- Before you begin to shop, make sure you’ve done your homework. Know in advance what you’re looking for and keep that in mind over the course of your search for a new home.
- Know your own timeline. When will you be able to move? How much time is left on your lease? Are you permitted to sublet? Does your current home need to be listed for sale? Know when things have to happen, and in what order. It will make the whole process go more smoothly.
- Take the long view. Will your new home be your ultimate abode, or is it merely a stepping stone along the way to your dream house? The decision between a starter home and a long-term, family home may influence the choices you make in looking for your new property, as well as influence which sort of mortgage loan may be best suited to your needs.
- Do NOT cut corners. Smart buyers insist upon home inspections. Ensure that any major problems or defects discovered are repaired before closing.
- Don’t over-leverage yourself. While your new home may be your dream, don’t forget that you will need to set aside money for maintenance and decoration, as well as other financial goals. Don’t spend everything on the house itself.
- Find the right person to work with. Look for real estate professionals who share your principles and style. Buying a new home is a highly emotional commitment, as well as an important financial one. Be sure that the agent or buyer’s representative you choose to assist you not only excels professionally but also fits well with your personality. Also remember, a listing agent’s first responsibility is to the seller, not you. A buyer’s representative works for you and has your best interests in mind.
- Avoid second guessing. If you find your ideal home, don’t wait and see if the housing market shifts in your favor or try to second-guess interest rate changes. Relevant changes don’t generally happen quickly enough to make a significant difference and excellent properties never stay on the market for long, particularly in New York City.
- Don’t outsmart yourself. Shrewd negotiating might save you a bundle, but you have to be careful not to negotiate yourself right out of the picture. Trying for that rock-bottom price could very well lose you the property.
- Look to the future. Buyer’s remorse is common, particularly for a big ticket item like a new home. Trust your choices and remember, your home is an investment. Come up with a post-home buying budget. Factor in repairs, decorating costs and maintenance. Don’t get caught short and allow your new investment, your home, to deteriorate.
BUYING IN A TOUGH MARKET
Buying your dream home for a reasonable price can be a bit of a tightrope walk. If you bid too low, you risk losing the property to rival bidders. If you bid too high, you eat up more and more of your budget. Here are a few tips on how to buy the home you want, for a price close to what you’d like to pay.
Be prepared to decide. It is essential that you are prepared. Know what you want, as well as what you need, from a prospective property. That way, you are ready with a timely offer as soon as you locate the property that is right for you.
Stay on top. Keep abreast of developments in the local real estate market. We will work with you to ensure you are on top, whenever a new listing hits the market. If a new property becomes available, do whatever you can (within reason) to be available for viewings.
Prequalify your mortgage. Sellers will tend to be more comfortable negotiating with an individual who can prove their dedication, in both intent and ability, to purchasing their home.
Contingencies. Try to secure a mortgage contingency for yourself. Aside from that, try and limit contingencies to those that are strictly necessary, for your financial situation or peace of mind. Any hurdle or restriction to a sale (delaying closing to a specific date, selling your current home prior to moving, etc.) can turn an otherwise excellent offer into a debatable one.
Offers. Before making an offer, we will make sure that we have compiled all relevant data for the property. When you’re ready to make the offer, be sensible as well as aggressive. Too aggressive (and too low) and you may offend the seller or lose out to another interested buyer. You don’t have to bid your ceiling immediately. Be intelligent. Take our experience and enhance it with your decision.
Beware buyer’s frenzy. Don’t get caught up in the competition of bidding. It’s not that sort of contest, and the highest bidder doesn’t necessarily “win.” Not if winning costs you more than you’re willing to spend.
Don’t skimp on inspections. Home inspections may cost you part of your budget, but they’ll save you money in the long run. You want to ensure that your potential investment is a sound one.
FIRST TIME BUYERS : 10 MISTAKES TO AVOID
Additional Information
- Failure to shop around. Chances are, you won’t buy the first property you see. Shopping for your mortgage shouldn’t be any different. If you don’t shop around for the right lender, you risk missing out on the best possible deal.
- Moving too slowly. It is important not to jump into an important decision like purchasing a new home. However, you cannot afford to agonize forever over the decision, either. It is vital that your offer is made in a timely manner, or you risk losing the property to another bidder.
- Failure to budget properly. Consider all expenses of buying a home, from inspection, to maintenance, to repairs, to renovations, to the all important property taxes you will soon owe. Consult both your agent and your accountant on what to be on the look out for as you are building your budget.
- Being too picky. Finding the perfect home is part of the American dream. However, beware the temptation to get caught up in the search. You may pass up a wonderful home in your price range, one that could become your dream home, because you can’t see past what you want to what is available. And the longer you look, the longer you’ll be paying out rent money you could be investing in your mortgage.
- Failure to consider the long view. Be sure to consider the resale value of your potential home. On average, a first time buyer keeps his or her first home for only four years. Also, keep an eye out for neighborhood information. New development projects (particularly roads or parks) can have a huge impact on the future value of your home.
- Improper compromise. While some compromises are going to be inevitable, don’t allow yourself to budge from the things you hold as most important in your property search. If you can’t stand sharing walls with neighbors, perhaps that condo isn’t the best compromise. Likewise, if you’re planning a family, don’t get sucked into buying a two-bedroom house when you know you’ll need at least a four-bedroom home.
- Failure to make an attractive offer. Make sure that any offer you make is made with thought to what will make it attractive to the seller. Look at it from their point of view.
- Cutting Corners. Don’t try to save money by not using an agent or skipping out on the home inspection. You may save money in the short term, but chances are you’ll pay for it in the long run. Experts re called expert for a reason, and they are there to help you.
- Failure to hire an agent. The real estate world is constantly changing. Even if you have purchased a home before, chances are some of the laws or regulations have changed. It is a real estate agent’s job to stay on top of every aspect of the process. Let them do their job. Let them help you.
- Getting attached too soon. Beware falling in love with a property before it has been inspected. A beautiful façade could mask a money pit. In addition, if you let your attraction to the property show too strongly, you may lose the upper hand in negotiations and end up paying far more than the property is worth.
Pros & Cons of Homeownership
WHAT YOU'LL LEARN
- Owning a home is a long-term commitment of time and money
- Homeownership may allow you to take advantage of tax benefits
- With a 30-year fixed-rate mortgage, your monthly payments will be stable for the life of the loan
Owning your home is considered the American Dream by many, and here’s why:
- You can take pride of ownership. You’ll have a place that is uniquely “yours” that you can customize – from paint colors to major remodeling projects.
- You may have some tax benefits. You may be able to deduct the interest on your mortgage and property taxes. These tax savings may offset a portion of the cost of owning your home.
- Your monthly payments will remain stable. With fixed-rate mortgages, your monthly principal and interest payments will stay the same for the entire period of the loan. This will make it easier to plan and budget – whereas rental rates may rise over time.
- You have the opportunity to create equity and enjoy stability. Owning your own home may be a great way to create equity for the future and provide stability and security for you and your family
Overall, buying a home can be a good investment but you need to remember you will become your own landlord. You are now responsible for the maintenance and upkeep of your home and property. This means that:
- You're responsible for all maintenance costs, from small plumbing problems to major – and costly – issues such as roof replacement and water pipe repair.
- You'll have to budget for all home-related costs, including utilities, homeowner association dues (if applicable), homeowner insurance premiums, and property taxes.
- You'll have to pay your mortgage and all other bills on time. Paying not only your mortgage, but all your bills on time helps you build and maintain good credit. This is essential if you want to borrow again in the future for home renovations, a new car, or student loans.
Due to unforeseen circumstances, there is also a chance that risks may arise:
- You may need to sell your home quickly. Depending on the local real estate market, you might not be able to sell your home quickly, or for the price you seek, and you'll still be responsible for the mortgage.
- Your property value could depreciate. Your home can lose value for a number of reasons, such as economic conditions, your home not being kept up, or a drop in neighborhood home values. You may want to ask your lender if they provide down payment insurance coverage to help protect you from risk of loss.
Be sure to weigh these potential benefits and risks carefully before you start your search.
KEY TAKEAWAYS
- Homeownership can offer financial security and stability
- There are no landlords with homeownership. Be sure you have the time and money to care for your property.
- You will damage your credit if don’t pay your mortgage on time
Rent vs. Buy
WHAT YOU'LL LEARN
- Homeownership is a financial commitment, pre- and post-purchase
- Buying may make sense if you plan to stay in your home for at least five to seven years
- The math behind renting vs. buying
Buying a home is a big financial investment – perhaps the biggest one you'll make in your life. Be sure to do your homework and carefully evaluate how you want to live and how much you can comfortably afford.
Homeownership can be very rewarding if you are properly prepared, know what to expect, and make informed financial decisions.
Is buying a home right for you? It may make sense if you:
- Have reliable income, good credit, and documentation to verify your savings.
- Can afford at least a 3% down payment and related closing costs.
- Want a chance to build equity and be eligible for homeowner tax breaks and credits.
- Have the time and money required for home maintenance and improvement projects.
- Have an adequate cash reserve to withstand a loss of job, illness, or other financial setback.
- Are planning on staying in your home for at least five years.
Rent vs. Buy: Crunching the Numbers
The costs of renting or buying are varied, making it hard to tell which makes better financial sense. Use our Rent vs. Buy calculator to evaluate the costs as illustrated for Sally and Darren in the example below.
Sally and Darren want to know if it makes better financial sense to rent or buy given their current $1,400 rent payment. How much home can they buy knowing they can afford a $1,400 monthly mortgage payment and can make a 5% down payment?
THE SCENARIOS
RENTAL SCENARIO
Monthly rent = $1,400
Monthly renter's insurance = $10
Annual rent increase = 3.6%
HOMEOWNERSHIP SCENARIO*
Purchase price = $200,000
Down payment = 5% ($10,000)
Annual property tax = $2,000
Annual homeowners insurance = $500
Annual home maintenance = $2,000
Mortgage rate = 4.5%
* These inputs will result in a monthly mortgage payment around $1,400 when factoring in PMI
We've also put in other assumptions and costs for Sally and Darren, including: a 3% home appreciation rate, a $1,500 origination charge, $1,000 for settlement services, 3% for selling costs, a 33.8% state and federal tax rate, and a savings rate of zero.
The Outcome
With this scenario, Sally and Darren will save $92,216 by buying instead of renting over a seven year period. If they stay in their home for 15 years, they will save $273,558. Over 30 years, they’ll save $887,450.
Armed with this knowledge, Sally and Darren are better prepared to answer the rent vs. buy question.