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Top 11 Tips From A Real Estate Attorney For New Home Buyers

Top 11 Tips From A Real Estate Attorney For New Home Buyers

Buying a home for the first time is exciting, but it can also feel overwhelming to traverse these uncharted waters. Your first home should be a blessing, not a burden. Instead of racking every nerve, rely on these tips to help you navigate the process, save money, and avoid common mistakes. The more prepared you are, the more likely you’ll find the right fit – for your heart, head, and wallet!

1) Figure Out How Much You Can Afford

What you qualify for in the bank’s eyes might be more than you want to spend each month on a mortgage payment. Leave room in your budget for other things that will come up. Your monthly housing costs (mortgage, HOA fees, taxes, insurance, etc.) should be no more than 25% of your take-home pay. A handy home affordability calculator will give you a preliminary idea of the home price you can afford.

2) Save A Down Payment

Typically a good rule of thumb is to plan for 20% or more. Many lenders will only lend up to 80% of the value of the home. Twenty percent of a $175,000 home is $35,000.  A good idea to expedite saving for your down payment is a commitment to set aside your tax refunds and work bonuses. Additionally, set up an automatic savings plan that systematically sends a pre-determined amount into savings each payday.

3) Get Debt Free And Save An Emergency Fund

Doing this step first will speed up your saving for a down payment since more of your income can be socked away if you are debt free.  For an emergency fund, plan for at least 3 months expenses – but 6 months is even better. Pause any new credit activity. If you plan on decorating and filling your new home with furniture, art, rugs, and décor, stick to a budget. Remember you’ll have moving costs to deal with, and move-in expenses if your home isn’t “move in ready”. You may be looking at expenses such as new paint, fixtures, appliances, or other necessary improvements. Avoid purchasing any improvements on credit – taking on new debt could impact your approval for a mortgage and cause you to miss out on the home you are attempting to spruce up.

4) Save For Closing Costs

One of the most common first time home buyer mistakes you’ll want to avoid is not budgeting for closing costs. On average closing costs are about 2-5% of the purchase price of the home. Sometimes these can be negotiated in the offer where the seller is commissioned to pay a portion of the closing costs. Just how much will be needed can be estimated, and exact figures will come from your lender before your closing day. Some of the items included in closing costs are:

  • Appraisal
  • Home Inspection
  • Credit report
  • Attorney fees
  • Homeowner’s insurance

Many of these are lender required. Be sure to shop around to get the best rates.

5) Get Pre-Approved For A Loan

Get pre-qualified for a mortgage in order to expedite the offer process when you find your dream home. Plus you’ll know for certain what your maximum price range will be when doing your home search. Obtaining a pre-approval letter from the lender before starting your search puts you at an advantage. It shows sellers your commitment to the process and that you’re serious. This gives you a competitive edge in a competitive market – especially when going head to head in an offer situation with another buyer that has not taken this step. When researching your loan options, it is best to avoid these sometimes tempting sounding mortgages:

  • ARMs – these adjustable rate mortgages often start low, so they make sense for someone planning to relocate in the near future, but as interest rates rise, your payments rise after the adjustable period begins – and the larger payment may be difficult to make.
  • FHA loans – appealing in that you may not have to come up with as much of a down payment to get your home, but this could be a big red flag that you aren’t on solid financial ground for taking on a home loan. The more you borrow, the more interest you pay. Additionally, putting less than 20% down means you’ll have to pay mortgage insurance for the entire life of the loan.
  • VA loans – available to service members and veterans, the 100% financing, no down payment, no loan limit, and no minimum credit score may sound enticing, but once you add a funding fee and closing costs, you’ll end up with more loan than house.

The best loans are 15-year, fixed-rate conventional mortgages with a 20% down payment. This option keeps your interest rate the same for the life of the loan, protecting you from the increasing expenses of rising rates. Once approved, avoid opening any new credit accounts or impacting your credit score until your home closes. Compare mortgage rates. Get at least three quotes and compare both rates and fees.

6) Research Federal, State And Local Assistance Programs

Assistance programs for first-time home buyers are available, with benefits such as down payment assistance, closing cost assistance, tax credits, and discounted interest rates. Your county or municipality may also offer first-time home buyer programs. The New Jersey Housing and Mortgage Finance Agency’s state-wide down payment assistance program provides $10,000 for qualified first-time homebuyers to use as down payment and closing cost assistance when purchasing a home in New Jersey.

7) Do Your Home Search

Searching online and working with a realtor covers the most ground. Let your realtor know what you like and what your deal-breakers are. A good realtor will provide valuable market expertise and can sometimes have inside knowledge of homes going up for sale but not yet on the multiple listing service (MLS). Your real estate agent can provide comps in the area (what other homes nearby have sold for) to help guide you on how much to offer. They’ll be the liaison between you and the seller/seller’s agent fielding questions and negotiating on your behalf. A reputable agent will provide sound advice for the offer and counter-offer process. During your search, a good rule of thumb is to buy for tomorrow. This means considering your future needs and wants and whether the home suits them, thus avoiding impulse decisions on a home that just fits today’s needs.

8) Research The Neighborhood

No decisions should be made based on property alone. Factor in all the elements of the location and neighborhood as well. Consider some of these factors in your research:

  • Crime rates
  • Schools
  • Commute times
  • Grocery store, pharmacy, and hospital

Visit at different times of the day and week in order to gauge traffic conditions, noise and activity levels. Visit in different weather to get a feel for sun exposure (or lack thereof) on the property. Choose a locale you feel good in, an area you feel good driving to and a neighborhood you think you’ll vibe with the residents.

9) Attend Open Houses

Once you narrow down the neighborhoods you like, then attend every open house you can in the area. Even houses you are not interested in buying to get more information about the area. You’ll gain insights on how your place compares to the other homes in the area. The best home purchase scenario is buying the most affordable house in your favorite neighborhood. And buying at a lower price range in a good neighborhood gives you more room to build home value.

10) Make A Competitive Offer

Rely on the expertise of your realtor. Ask them to help make sure your offer is competitive but also within your budget and a fit with the home’s value. Personalized letters sometimes help your offer stand out among multiple bids.

Negotiations in the offer can include requesting major repairs be made and paid for by the seller prior to close, or reducing the price of the home if the seller isn’t covering them. If you are in a buyer’s market, there is much more room to negotiate.

11) Prepare For Closing

After offer acceptance, the closing process begins. On average most homes close at around 41 days from offer acceptance. Your real estate agent schedules the remaining steps which include things like the home inspection and the final walkthrough (both of which you should attend). Your agent will keep you informed about any roadblocks that come up. Be sure to carefully read all the documents, and ask your real estate agent to explain anything you don’t understand.

Buying your first home may be the biggest purchase in your life thus far, and there are a lot of details to be aware of in the process. Be as proactive as you can and don’t go into a situation unprepared. Tapping into a resource to help protect your interests is your best bet.

As an experienced real estate lawyer, Attorney Joel R. Spivack has helped countless families, in Camden County and throughout South Jersey, buy their forever homes. Let him help you today. Call Attorney Joel R. Spivack today at 856-488-1200.