Wedding planning was a nightmare for me. Although some people are interested in little details of big days, etc, I am not. When Nick and I got married, planning the wedding was more of an exercise in frustration than it was a fun and special process. The wedding itself came off great, with a huge amount of help from friends and family. Their support was what kept me from going insane. That being said, the worst times spent planning our wedding had nothing on buying our first house. Buying a house for the first time (unless you’re paying cash, in which case, this is not the article for you), is a magical combination of drudgery, anxiety, getting lost, paperwork, and frustration. There are, however, a few steps you can take to take some of the pain out of buying your perfect first home.
1. Get your finances in order.
This one’s a biggie. Before you even start looking at houses online, it’s vital to know what you can afford. Mortgage companies look at your credit score, the amount of cash you have on hand, your monthly income, and your debt to credit ratio. If you gather all of this information yourself, before even talking to a mortgage company, the process goes much smoother.
You can find your credit report here: https://www.annualcreditreport.com/index.action
House Affordability Calculator: http://www.zillow.com/mortgage-calculator/house-affordability/
Debt to Income Ratio Calculator: http://www.zillow.com/mortgage-calculator/debt-to-income-calculator/
Generally speaking, you need a minimum credit score of 620, and a debt to income ratio below 36% in order to buy a house. Certain programs, such as VA loans or the FHA program will allow you to have a higher debt to income ratio, sometimes as much as 41%.
Once you look at your finances you can decide what kind of mortgage is right for you. A conventional mortgage generally requires 20% down. Many first time home buyers struggle to come up with the full 20%. It is more and more common for banks to offer conventional mortgages at 10% or even 5% down.
In Maine, there is a fantastic program called the CU Promise Loan. They allow you to get a mortgage for 3% down if you meet their credit requirements. That’s the program Nick and I are using for the house we are buying now.
There are also several government programs that are very popular among first time home buyers.
FHA – Allows you to buy a home with 3.5% down if the home meets eligibility requirements.
USDA Rural Development Loan – Allows you to buy a home in a “rural” community with 0% down and allows closing costs to be rolled into the loan. This is a great program. Almost all of the towns in Maine qualify for this program as well.
VA Loan – Veterans qualify for this program that allows them to buy homes for 0% down.
2. Get Pre-Approved by a Mortgage Company or Bank
So you’ve looked at your finances, and you’re in good shape to buy a house. Great! The next step is to get pre-approved by your chosen bank or mortgage company. You can get pre-approved by contacting the company and asking about the pre-approval process. More and more companies are allowing home buyers to get pre-approved online.
The company will pull your credit reports and look at all of the information you gathered from the first step. This will allow the bank to decide how much money they are willing to lend you. Once you find out that number, you’re ready to look at houses! But first…
3. Get a Buyer’s Agent
Having a buyer’s agent is incredibly helpful. They are a real estate agent that works for you. They help you look at houses, submit paperwork, help you negotiate, and generally navigate the whole process of buying a house.
Buyer’s agents are paid out of the selling agent’s commission, so you don’t need to worry about paying them. Having a buyer’s agent is probably the best tip I would give any first time home buyer.
You can get a buyer’s agent by contacting a real estate agency and asking for one. We had a great experience using an agent from Bean Group for our first house, and this time our buyer’s agent is from Century 21.
4. Look at houses!
This is the fun part! You can make a list of houses and your buyer’s agent will show them to you.
Nick and I made a list of house must haves and used those to filter our search results so we were only looking at houses online that met our criteria. Next we made a list of houses to drive by. This allowed us to eliminate houses that were inconveniently located for us or that had obvious flaws. After eliminating some houses in the drive by, we were able to give our buyer’s agent a list of houses that we were really interested in.
Once you find a house you really like, you’re ready to make an offer!
5. Making an Offer, Getting a Home Inspection, and Closing
These last steps have been bundled into one because, although they can be the most time consuming, they are also very paperwork heavy. Your buyer’s agent will help you navigate all of the paperwork. Make sure you read everything and understand what you are signing.
One thing that I recommend for everyone is to get a home inspection. Home inspections will help you find any flaws in the home that might not be obvious at first. You can use the results of the home inspection to negotiate a better price, or ask the current owners to fix problems before you close. Many mortgage programs for first time home buyers require you to get a home inspection in order to purchase the house. Look for a home inspector who is certified and has good reviews online.
Once you have had the home inspection done and have completed all of the paperwork and any work that needs to be done on the house, you are ready to close. Usually, a closing agency will handle the closing for you. The mortgage company will be able to recommend a closing company.
Once you close on the house, it belongs to you!
Hopefully this brief guide breaks down the home buying process and makes it a little clearer!