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Tips for First Time Home Buyers

Buying a home for the first time is exciting. It's kind of scary too. The average age of a first-time home buyer in the U.S. is around 33, which is fairly young to be making such a massive financial decision. Those who have been around the block a few times should exercise caution, but that's even truer for first-time buyers. Here are 11 tips to keep in mind when preparing to buy your first home:

  1. Get a Handle on Your Credit Situation - The state of your personal credit will determine whether you'll be eligible for a mortgage as well as how much you will pay for one. Before doing anything else, then, get a clear understanding of your creditworthiness. Obtain your free annual credit reports for all three credit bureaus, or pay to access them again if you have within the last year. Get your credit score. Examine each report carefully. If you find mistakes, report them. If you find issues like delinquencies, do your best to correct them.
  2. Make a Budget - There's no point in looking for a home to buy without knowing how much you can afford to spend. Set a budget early on to avoid having your heart broken again and again by promising homes that are far too expensive. By knowing your ideal price range, you can limit your search to homes that fall within it. Online mortgage calculators can give you an idea for how much you can afford to pay each month. Better yet, visit a loan officer to get a pre-approval. Be aware that lenders will look at your debt-to-income ratio too. They want your front-end ratio, or the portion that goes toward housing costs, to be 28 percent or lower. They want your back-end ratio, or the portion of your incomes that covers your usual monthly debts, to be 36 percent or less; some will go as high as 45 percent. If you make around $4,000 per month, then, your monthly housing costs--your mortgage payment, homeowner's insurance, property taxes, maintenance costs and so on--should not exceed $1,120.
  3. Make a List - Your search will unfold more smoothly when you are clear about what you need and what you want. These are distinct things, of course. Make a list of your must-haves--non-negotiable attributes that you can't do without. For example, you might require a certain amount of space or a certain number of bedrooms. Make a second list of nice-to-haves, including amenities and things that you could technically live without but would love to have.
  4. Hire an Experienced Agent - The agent that you choose to help you buy your first home will make or break your overall experience. Take your time looking for one, and make sure that they have the right credentials and experience. Choose someone who knows your target area like the back of their hand. They should know the local market well, and they should be able to connect you with real estate lawyers, loan officers and others who can assist you further.
  5. Scout Out Comparables - No, comparables aren't just useful for people who are trying to come up with listing prices. They can clue buyers into what the market is doing, allowing them to be more strategic. Find homes in your target area that sold recently. How much were they listed for? How much did they sell for? This will give you an idea for what to expect.
  6. Amass a Decent Down Payment - Sure, you can always opt for an FHA loan that only requires a small down payment. For the best terms, however, it is always best to come up with a down payment of at least 20 percent. Look for ways to pull the funds together. For example, your parents can each gift you up to $13,000 without facing tax obligations. If you're married, that means that you could receive up to $52,000. If you have to repay it, though, it will affect the amount that you are ultimately approved to borrow.
  7. Think Long Term - That house may be perfect for you at this very moment, but how will it be down the line? Will it continue to suit your family, or are you likely to need to move fairly soon? How difficult will it be to sell the house if so?
  8. Scour HOA Contracts - If you look at a home that is in a neighborhood that is governed by a homeowner's association, or HOA, ask for and carefully read the HOA's guidelines before making your decision. Some HOAs are fairly laid back, but many are very stringent about things that some homeowners find aggravating. Also, if you want to rent out the place someday, the HOA may restrict your ability to do so. By reading up on the local HOA, you can make a much more informed decision.
  9. Look Past the Staging - Staging is great for sellers because it puts a home in the best possible light. It can be deceptive for buyers, however, so try to look past it as best as you can. For all that you know, that huge sofa was strategically placed there to cover up something. Also, some elements like paint and wallpaper can easily be corrected, so don't count them against a house if they aren't to your liking.
  10. Protect Yourself - Even if your budget is fairly modest, always pay for a thorough home inspection by a reputable company. Insist on contingency clauses in your contract in case something comes up. Otherwise, you could lose your earnest money or other deposit, or you could be left on the hook for buying the home even if you change your mind. If feasible, hire a real estate lawyer to look over everything for you too. After all, this is a legally binding situation, and it is definitely not the time for careless mistakes.
  11. Financing a Property - These days, there are more home loan products than ever. It's little wonder that home buyers are often so perplexed. Like many people who are buying a home, you may be automatically leaning toward a standard 30-year mortgage. However, what if there is something better--something that suits your financial or lifestyle needs more effectively? By educating yourself about the various ways to finance a property, you will have an easier time selecting the right loan. Boston City Properties is here to bring you up to speed.

Conventional Loans

If you have good credit and have amassed a down payment of at least 20 percent, you should consider getting a conventional mortgage. A conventional loan is one that has a fixed interest rate. It isn't insured or backed up by the federal government, which is why it tends to have pretty strict credit requirements. You see, with an FHA or VA loan, a government agency is guaranteeing the loan, so lenders are more willing to extend credit to people who make less or who otherwise aren't extremely qualified.

With a conventional loan, all of your financial ducks must be in a row. You will need a very good credit score, and you will have to meet some pretty demanding income requirements. Most importantly of all, however, you will need to pay a down payment of at least 20 percent. By paying an even larger down payment, you can reduce the cost of your loan even more. This is sometimes called "buying points." Chances are that you already know whether or not a conventional loan makes sense for you. In today's shaky economic times, many people don't even come close to qualifying for these types of loans. Fortunately, there are other options.

Conventional loans can be conforming or non-conforming. In the event that you want to get a conventional loan, you will probably have to decide between these two as well. A conforming loan is one that conforms to guidelines that have been established by Freddie Mac or Fannie Mae. For example, both have guidelines regarding loan limits. On single-family homes, conforming loans can't exceed $417,000. If you want to buy a single-family home that costs more than that, you will have to look into jumbo loans. These loans are only offered by certain lenders, and the process to be approved for one tends to be very arduous.

FHA Loans

If you don't qualify for a conventional loan, you aren't out of luck--not by a long shot. Most people who don't qualify for conventional loans proceed directly to FHA loans, which are loans that are backed up or guaranteed by the Federal Housing Administration, or FHA, which is a division of the Department of Housing and Urban Development. Basically, FHA backs up these loans so that if they are defaulted on, lenders still receive some of the money that they are owed.

One of the best things about FHA loans is that they have minimal down payment requirements. Unlike a conventional loan, where you have to provide a down payment of at least 20 percent, you only need to come up with one of 3.5 percent or higher. This is why FHA loans are so popular with first-time buyers. They typically haven't had time to accumulate decent down payments. Without FHA loans, many first-time buyers would be out of luck. FHA loans also have laxer requirements, so if you are struggling to be approved for a conventional loan, you may have better luck with an FHA loan.

VA Loans

If you are a veteran or service person, you might consider taking out a VA loan. Like FHA loans, VA loans are guaranteed by a federal agency--in this case, the Department of Veterans' Affairs. In most cases, no down payment is required at all. Eligibility requirements are also very relaxed--some would argue that they are even laxer than those for FHA loans. Don't just walk into a bank and ask about these loans, though. First, contact the VA and get a certificate to show lenders that you are eligible for VA loans. That way, your loan will be processed more quickly, and you won't waste any time.

State and Local Mortgage Programs

You might also want to check locally for special mortgage loan programs. Oftentimes, state and local agencies and governments offer special programs for certain populations. For example, if you make less than a certain amount per year, you may be eligible under a local program. If you are willing to buy a home in a specific area, you may be able to take advantage of a special local loan program. The possibilities here are pretty endless, so visit a local bank or credit union and ask.

Fixed versus Floating

The other big variable to consider when financing a property involves the interest rate. You can choose between a fixed-rate mortgage and a floating-rate mortgage. As the term implies, a fixed-rate loan carries the same interest rate from start to finish. You will always know how much your mortgage payment will be, which is very convenient. However, if you know that your income will increase in a few years, this option may limit your ability to buy the home that you really want.

People usually choose adjustable-rate mortgages because they need a few years of low payments but know that they can handle larger ones later for whatever reason. With a floating rate, your interest rate will be fixed at first. After a certain period of time--usually one, five or seven years--the rate becomes variable and adjusts based on the market rate. In most cases, the rate adjusts monthly. Another type of floating rate mortgage is called an interest-only loan, where you only pay down the interest charges at first and start paying down the principal later. This is bad in that after several years, your balance won't have gone down at all.

Ideally, meet with a mortgage broker who can connect you with many types of loans. That way, you are more likely to get a loan that suits your exact needs.

Tips for First-Time Home Buyers

For most people, buying a home is one of the largest and most important purchases that they will ever make. The home-buying process is rarely simple. Even those who have gone through it before find it to be complicated and confusing on subsequent occasions. Matters are trickier still when dealing with a fast-paced, competitive real estate market—and if you’re looking in Boston or anywhere in Massachusetts, you can rest assured of that. It’s easy to feel overwhelmed as a first-time home buyer, but the team at Boston City Properties is here to help.

All too often, first-time home buyers assume that they can sort things out largely on their own. However, real estate markets are confusing, and zeroing in on something that really works is tougher than many people realize. The internet has empowered people to be able to do much of the initial research themselves, but it’s only effective when reliable sources of information are used. Boston City Properties offers an array of useful resources and services for anyone who is buying or renting property in greater Boston or elsewhere throughout the state. For now, though, read on to pick up some useful tips for getting through the home-buying process in one piece.

20 Tips for First-Time Home Buyers

The internet is awash with websites offering guidance for first-time home buyers. At the end of the day, however, the thing that will affect your experience more profoundly than anything is where you turn for help and information. By signing up with Boston City Properties, you’ll gain access to a wealth of useful resources that are specifically geared toward real estate in Boston and Massachusetts, including up-to-the-second property listings and a powerful search tool.

Without further ado, here are 20 tips that were hand-picked by our team specifically for first-time home buyers:

The Best Advice for First-Time Home Buyers? Connect with Boston City Properties

The tips that are listed above cover the basics for you, but they are only meant to serve as an initial guide. At the end of the day, the thing that will affect your ability to find the right home the most will be the quality of the information that you rely on. The fastest way to gain access to a wealth of resources that are geared specifically toward Massachusetts and Boston real estate markets is by connecting with Boston City Properties. With access to these resources, you will lay the groundwork for a much more efficient, effective and stress-free home-buying experience.

If you’re ready to take the plunge into first-time homeownership, Boston City Properties is here to help. As excited as you surely are to take this step, take care not to rush things. The right home is out there and waiting for you, but it’s up to you to do much of the work. Kick-start the process now by signing up for access to our constantly updated listings. When you’re ready, give us a call for a referral to a real estate agent in your desired search area. For more information, give us a call.