Experts agree that gaining concrete knowledge of what it takes to buy a home can have a positive influence on your first home-buying experience, whether it’s one, five, or ten years from now.
Acclaimed author Napoleon Hill wrote, “A goal is a dream with a deadline.” For many women, owning a home is an element of their long-term life plan, even if they’re not yet sure how far into the future they expect that particular dream to come to fruition.
Turning the dream of home ownership into a realistic goal in today’s financial climate can seem challenging, to say the least. Not only does purchasing a home typically involve saving thousands of dollars and committing to monthly mortgage payments for years, but the process itself can be intimidating. Lots of paperwork, lots of signatures, lots of possibilities and unknowns to consider.
Once you understand the process, though, you may see that it’s possible to make that dream a reality sooner than you might have thought. We asked experts on real estate and personal finance for the real deal on down payments, mortgages, and securing the realtor who can help you find your home sweet home.
Down payments
It’s commonly held that buying a home involves paying 20% of the agreed-upon purchase price when you close on the sale. That’s not always the case, and understanding your options can help you be better prepared to make your move when the time comes.
It’s possible to buy a home with a down payment that’s only 3.5% of the total home price. That’s the case with Federal Housing Administration (FHA) loans, which are insured by the U.S. Department of Housing and Urban Development (HUD). There are also conventional options for 5%, 10%, and 15% down payment options. If you are a veteran or physician, you may qualify for specific loans that don’t require a down payment at all.
But even though you can make a small down payment, that doesn’t necessarily mean it’s the best option. Beatrice de Jong, licensed broker and consumer trends expert for real estate platform Opendoor, says, “Putting more down will mean a smaller loan (mortgage). If you manage to cover at least 20% of the home price, you will be in the best shape to avoid additional fees like private mortgage insurance.”
Kristina Morales, a realtor at Morales Team Real Estate, offers a similar word of caution. She also explained that private mortgage insurance (PMI) requirements vary, so you’ll need to ask your lender what those additional monthly costs will look like.
Mortgages
In most cases, buying a home means living with both a new address and a significant new line item in your monthly budget. Michelle A. Fait, certified financial planner and founder of Satori Financial, explains that determining the monthly payment you can comfortably carry “is not the same as ‘how much house you can afford.’” When consulting with prospective home-buyers, she urges, “Think twice before you max out not only all your credit capacity on a mortgage, but also what other parts of your life a substantial mortgage payment squeezes out—including things like new furnishings for your new home and a vacation away from it.”
Here’s where your credit score comes into play: de Jong confirms that the better your credit score, the lower your mortgage’s interest rate. Doing what you can to raise your score well before you start to house hunt will pay off in the long run. (As we’ve discussed before, note that you also have options if you don’t have a credit score at all.)
Aside from a mortgage, there are lots of other costs to consider when purchasing a home: homeowners association (HOA) fees, home insurance, home warranty, property taxes, additional city/subdivision taxes, repairs, and costs for maintenance of a backyard. Vivek Sah, real estate expert and director of the University of Nevada, Las Vegas’ Lied Institute for Real Estate Studies, says wise buyers must consider such costs. He encourages buyers to “look for financing options through banks, lenders, and mortgage officers and spend a lot of time on understanding all the financing options out there.” He emphasizes the potential in credit unions, “which have great rates and are better than most other lenders.”
Realtors
As with any major financial decision, it’s important to work with someone you trust. Sah says, “Find a realtor who is more of an advisor and not an intermediary and a salesperson.” You want someone who is reliable and can give valuable long-term advice.
Recommendations from other buyers and sellers in your area are a good place to start (if you’re looking to change locales, try a Facebook group that’s in your new area). If you’re not familiar with the process of home-buying, Morales says you should “choose [a realtor] who enjoys working with first-time home buyers and enjoys educating their clients.”
Part of having a good relationship with your realtor is communicating well with her, and that means making your expectations clear. Fait says the expectation should not only be that your realtor will help you bargain, but also walk away if the situation calls for it. “Homes aren’t investments as much as they are personal use assets, but you need to be smart nonetheless about getting the most you can for your money,” Fait says. “You should love that you worked out a good deal as much as you love your new home.”
No matter how good your realtor is, though, only you can determine which home is the right fit for you. Sah recommends scouting out the location you’re interested in for at least a few months before you start to look at specific listings. Be open to different neighborhoods before you narrow your choices down too much. You can keep up with the local housing market by looking at reports published by local realtor organizations, university housing centers, or other similar resources.
Experts suggest buying in an area where you want to live for at least five to eight years to justify the costs of home buying. This can be a useful perspective for a prospective buyer who’s not sure how to gauge the costs of movers, repairs, decorating, and so on. That time span can also be comforting for someone looking to buy, but not yet ready to commit to a “forever home.” However, it’s not a hard-and-fast rule, so don’t let the possibility of only staying in a home for only three or four years dissuade you from buying, if all other signs point to it being the right decision for you.
