If you are a first time home buyer, you may be excited about the prospect of looking for and buying your dream home. Once you start the process of looking at homes, you may find that the reality of home searching is not quite what you expected. Below are 5 tips that should help if you are a first time home buyer in Ventura County.
First Time Home Buyer Tips
Before doing anything else, we like to recommend to any first time home buyer that they get pre-qualified from a bank or lender of their choice. Until you have a clear idea of how much of a loan you qualify for and are comfortable with, you may be spending valuable time looking for homes that will not fit into your long-term financial plan. A case in point is when a client that my wife was working with initially told her that he was looking for a home in the $350,000 range. Before they went to view different homes, my wife had him get pre-qualified with our preferred lender. It turned out that he was only pre-qualified for about $250,000. So without a large down payment amount or financial help from friends or family, there would have been no way that he could have purchased a home for $350,000.
As a reminder, a first time home buyer getting pre-qualified is not the same as getting pre-approved. A pre-qualification is a fairly simple process in which you provide some of your financial information to a lender and they give you an idea of what you can expect to be approved for. It does not include an analysis of your credit report, so you will not get an inquiry on your report. A pre-approval is more involved and includes a check of your financial background and your credit rating. Once a first time home buyer is pre-approved, you will know the exact loan amount you are approved for and at what interest rate.
Determine all of the associated expenses
On top of your monthly loan payment, there are other monthly expenses that will be associated with owning a home. To name a few: property taxes, insurance, and utility bills as well as the less common expenses like Homeowner Association (HOA) dues and Mello Roos tax, neither of which are associated with all properties. Some of these expenses may be added into your monthly payments, called an Escrow Account, but others will be paid separately of that bill. Once you begin viewing homes, you want to have an idea of what costs each home will have, especially HOA dues and Mello Roos, because those expenses can add up to be quite a percentage of your overall approved loan amount.
Work with a real estate agent
With all of the online resources available to a first time home buyer, it may be tempting to try and look for a home without the use of a real estate agent. While that is definitely possible and is easier to do than ever before, there are some compelling reasons why a first time home buyer may still want to work with a realtor. First and foremost, an experienced agent will know the “business” of real estate in a deeper fashion than a non-realtor. Not including the fact that they should have more in-depth knowledge of different neighborhoods, they will know policies and procedures that will work to your advantage and keep you out of trouble. They should know how to analyze comps to make sure that you are not over-paying for any home you may be interested in. Probably the biggest advantage of working with a real estate agent is that they can get you inside of properties that have lockboxes on them. Since non-agents cannot be given the codes, you would have to contact each listing agent individually to have them show you the home you are interested in. If you are working with your own buyer’s agent, they will do all of that work for you and be able to show you multiple homes in one day.
Getting a home inspection
Once you find the home of your choice and have it under contract, a first time home buyer may want to use the contingency period to hire a professional home inspector. Although this will cost you an “extra” $300-$500, a professional inspector can help uncover defects or safety issues that an untrained eye might miss. Although this may not be as big of a deal in newer homes, the older a home is, the better of an idea this will be. If there are any defects or safety issues that are discovered, you can negotiate to have the seller make the repairs or discount you a certain amount to do the repairs yourself. Otherwise, you can rescind your offer without losing your Earnest Money Deposit (EMD) if the seller is not willing to negotiate. (Make sure you understand the contact you signed with the seller and what type of contingency period you have in place, another great reason to work with a Realtor).
Do not open any new loans while in escrow
Hopefully your mortgage lender will have explained this to you, but a first time home buyer should not open any new loans between their pre-approval and closing escrow on their home. Most lenders will pull the borrower’s credit one last time before closing to make sure that nothing major has changed in the borrower’s financial situation since they granted the pre-approval. If they see that any new loans were taken out, this will affect your Debt-To-Income (DTI) ratio and most likely, disqualify you from the original pre-approved loan amount and/or rate. It is probably best that you avoid even getting your credit ran, as this will show up as an additional inquiry. While this may not prevent your loan from getting approved, it is better to be safe than sorry when it comes to buying your dream home.