What to Expect When You’re Inspecting
First-time homebuyers might wonder: How hard can it really be? Find a house, make an offer, negotiate, buy.
Let’s just say that there are myriad factors — some big, some small, and some you’d probably never think of — that go into a home purchase. REALTORS® are there to help you navigate the complex process of what is very likely to be the largest purchase you’ve made thus far.
Here are nine things that you might not have considered when looking to buy your first home:
Your credit rating goes a long way toward determining whether you qualify for a home mortgage and if you do, what kind of interest rate you get. The difference between a strong credit score and so-so one can mean a difference of up to two percentage points (as an example: 3.25% vs. 5.25%). With a lower score, you’ll pay a significantly higher monthly payment, which over a 30-year mortgage really adds up.
So check your credit report. Consult your REALTOR® about where you stand. According to Business Insider, you’ll need a credit score of at least 620 for conventional loans. But you still may be able to qualify for an FHA, VA, or USDA loan with a lower score.
For decades, putting 20% down was the standard for first-time home purchases. But in the last few years that number has dropped. A 2018 survey by the National Association of REALTORS® found that the median down payment for first-time homebuyers was 7%. This is not to suggest that putting 20% down is no longer a good idea. Any down payment lower than that may require you to get Private Mortgage Insurance. PMI protects the lender and enables you to get the mortgage amount you need, but it can add .5%-1% to your home loan a year. The bottom line? Less money down means more money borrowed -- and that means higher monthly payments.
When you’re eager to get the process going so you can get into your new home, it’s tempting to jump on the first lender you talk to. Not a good idea. Improving your rate by just a fraction of a percent will save you considerable money over the course of a 30-year mortgage. The Consumer Financial Protection Bureau says that comparing rates from at least three lenders can lead to a savings of $3,500 during the first five years of the loan. Your REALTOR® can be a valuable resource in loan-hunting and can even introduce you to a number of lenders
The right area is just as important as the right home. Make a list of criteria — location, commute, housing mix, parking, walkability, nearby schools, parks, playgrounds, etc. Drive through the area. Get the feel of the place -- but remember to observe social distancing rules that may be in effect. And don’t forget to talk to your REALTOR® about the neighborhood. Their local knowledge will be a solid source of information.
It’s widely agreed that housing costs should not exceed 30% of your take-home income. Seems like simple math, until you start taking some other things into account. Along with your mortgage payment, you need to factor in property taxes, homeowner’s insurance, and even HOA fees if applicable.
You may want to consider what your housing needs are going to be in the relatively near future -- particularly in regard to the size of your family. If you plan to have children or may have a parent or relative moving in, consider your future needs and whether the current home meets them. It doesn’t make much sense to move into a smaller home only to have to move into a bigger one in a couple of years.
Many newer communities are governed by homeowners associations, which are designed to effectively keep up a neighborhood. A homeowners association sets rules that cover everything from the color you can paint your house to the number of cars you can park on your driveway. They also charge an HOA fee, which is paid by everyone in the community to pay for upkeep to common areas, maintenance, and other endeavors. HOA fees vary widely by community, and there is also the possibility of assessments, where the association requires you to pay extra lump sums for major improvements.
Ask your Orlando REALTOR® to get as much information as possible about HOA rules and fees for any community you’re interested in. Make sure you’re comfortable with what you’re signing up for -- and what it’s going to cost.
Once you finally decide to make an offer on a home, most REALTORS® will advise a pre-purchase home inspection (with the offer contingent on the results). A home inspector will examine the home from top to bottom, looking for plumbing issues, faulty wiring, roof problems, the presence of mold and asbestos, and more. The inspector’s job is to identify major problems that can be addressed before you take possession of the home. If they can’t be fixed -- or your REALTOR® isn’t able to negotiate a suitable concession in price -- the inspection can be your ticket to backing out of the deal without penalty, as long as it’s written into your contract. An inspection will cost you $300-400 out of your own pocket -- but it just might be the best money you’ll spend in the homebuying process. Trust your REALTOR® to recommend a selection of reliable inspectors.
These fees typically come to 2% to 5% of a home’s sale price, so it’s important to include them in your budget. In some cases, you may be able to fold some or all of these costs into your mortgage. But again, that means they’ll only cost you more over time. Be sure to understand what your options are by talking to your Orlando REALTOR® and your lender.
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