Buying a home can present many uncertainties for new home buyers and may keep you from making that ultimate commitment. Know that you are not alone if you are feeling stressed, scared, uncertain or any other emotion with this lifetime change.
We want to discuss the three main things that scare most home buyers and give you tips on how to overcome these fears.
The greatest fear that people have about buying a home is being able to afford it. This is what keeps us awake at night – calculating and recalculating how many lunches we have to pack instead of going out with the gang, to be able to make the mortgage payment.
The behind-the-scenes secret to dealing with this fear is working with a great Lender and getting pre-approved BEFORE you start looking at homes, and being realistic about what you’re willing and able to spend.
The Lender will give you a range of loan options available and if asked, will give you a realistic projection of what you can REALLY afford, considering your budget and lifestyle.
Women like to stereotype men as having a fear of commitment – but when it comes to buying a home, we’re all susceptible. Buying a home usually means committing money and time (at least a year – usually more like five years) to being in one spot.
If you’re just finishing a degree or training, or you’re not sure that you’ll be in the same position for a while, you may consider waiting until your life is a little more stable.
The behind-the-scenes secret to dealing with the fear of commitment is in buying a home that will resell easily – that has features that other people will want. In addition, you can get a two-step mortgage that allows you to pay a fixed rate for a certain period of time, and a flexible rate later on – so you can get out of the loan easily after the first step.
Who can you trust in this home-buying process? This is a big investment we’re talking about. And it seems that everyone is out to make as much money as possible OFF of you! There are sellers, real estate consultants, lenders, builders, movers, and attorneys, all of whom may be strangers, and have a vested interest when you buy a home. It’s easy to be afraid they’ll take you to the cleaners.
The behind-the-scenes secret is to check their references. Really. Many lenders and real estate consultants operate on a “By Referral Only” basis – in which they ask clients to refer them to others they know are buying a home. Those who offer “lifetime relationships” and other services (like free reports and seminars on buying or selling homes) are already striving to meet your needs.
In reality, they are NOT all out to get you – because in the long run, the BEST business strategy is to make sure that you get what you need and want in a home.
You aren’t the only person who gets discouraged when looking for a home. Homebuyers become emotionally invested in the home search process and can become easily worn out, therefore leading to discouragement.
I am here to provide you a sense of hope in your home buying search. I actually have a personal family member that proves the home buying experience does not have to be a long, drawn out process.
My daughter recently purchased a home and the whole process from the time she got approved to owning the home was 45 days. I’m here to share the advice that I gave her that enabled her to be successful in the home buying process.
1. Partner with a GOOD real estate agent
I can’t tell you how many times homebuyers complain that the home buying process is taking forever. Well my first question is, “Who is your real estate agent”?
Often times, buyers are working with agents that are not aggressive, knowledgeable or current in the industry. Being partnered with a professional agent who knows what they are doing is going to make all the difference in your experience. I partnered my daughter with our top agent, and she was a huge part in making this process go quickly.
2. Don’t become emotionally attached to a home
This is a huge problem. People become so attached to one specific home that they become blinded to all the other great homes in the area. I’m going to tell you what I told my daughter, put multiple offers down on homes and do not become emotionally attached.
If you become emotionally attached and your offer isn’t accepted, you’re not only losing the home you wanted, but your losing all the time and energy you spent on being emotionally involved in the process.
Now by all means, love the home you are putting an offer on. If you don’t like the home, don’t waste your time. However, be open-minded to qualities in different homes, and put multiple offers down.
My daughter put 4 offers down, and 1 got accepted, which is now her home.
3. Work with a knowledgeable mortgage broker
You need to work with a mortgage broker that knows what they are doing. There are so many guidelines, restrictions, and qualifications that are constantly changing. You need to be working with someone who has experience in the industry and remains up to date to the changes for all the different loans.
Also, make sure that you are working with a mortgage company that has a great closing ratio. For example, at Stateline Funding Corp., we have a 100% closing rate. That means with us, you will never experience the term you quite often hear, “fell out of escrow”. If we give you our approval, you are qualified to purchase a home.
4. Return and sign documents in a timely manner
Sometimes the homebuyer is the one who slows down the process. There are countless documents that need to be signed that can be time consuming. However, the faster those documents are signed and returned, the faster the loan can be processed. Also, when mortgage brokers request items from the borrower, the faster those items are returned the faster the loan will be processed.
The homebuying process does not need to be 6 months long. Trust me! I have been working in this industry for over 30 years, and I know what it takes to make it go quickly. If you are discouraged in your home search, carefully consider if your real estate agent is the right fit for you. Also, determine if you are being open minded in your house search.
If you would like more guidance in the home buying process contact us.
When buying a home there are several things you will need to get in order to move through this process quickly and without complications. Here is a brief list of items to check off before purchasing a new home.
Fix your credit
In order to prepare to buy a home, it is best to figure out what your credit score is about three to six months prior to buying a home. A typical credit score needed to purchase a home is no lower than 620 to 640 depending on the lender and loan requirements. It is also important to fix any errors on your credit report. The earlier you do this the better to help get your credit profile on the right track to buy a home.
Prepare for down payment and closing costs
Your down payment can vary depending on the percent down required for the mortgage loan you are applying for. For example, conventional loans can be 20 percent down. Most first time homebuyers buy FHA (Federal Housing Act) which is 3 to 5 percent down. Look at the following examples to show a comparison of what you would need to save for a first time home purchase:
If you purchase a home for $250,000 your down payment would be $8,750 for a FHA loan of 3.5 percent down.
If you purchase a home for $250,000 your down payment would be $55,000 for a conventional loan of 20 percent down.
Find out how much house you can afford
In order to find out how much house you can afford, you need to know what your debt-to-income ratio is. The limitations that most loans require is up to 50 percent; however, it is advised to maintain a 30 percent debt-to-income ratio to avoid a tight budget. The debt ratio is the mount of income that has to be set aside in order to pay off your liabilities such as car payments, credit cards, student loans, etc.
Also keep in mind that just because you may qualify for a $350,000 home based on your gross income and debt ratio that does not mean you must buy a home for that amount. Lenders typically will qualify you for the highest loan amount you can obtain so that you have more options and won’t need to get re-qualified for a higher amount if needed. Keep in mind you are getting qualified based on your gross income, not your net income which is what you live on after being taxed.
So with that said, it is up to you as the homebuyer to make a wise home purchase based on your income and typical spending habits.
Start housing hunting
Once you have decided on the price range, partner with a trusted real estate agent in your area to help assist you in the home buying process. Referrals are a great way to choose an agent because they are likely knowledgeable and trusted from your family, friends or co-workers. Explain exactly what is important to you in a home like the school district, number of bedrooms, neighborhood area etc. However, try not to be too picky in criteria that you are able to fix. Try to focus on the main criteria that you can’t change like a neighborhood and school district when choosing a home.
Make an offer
Before making an offer, have your real estate agent pull up a comparable sales list. This will show you what other similar homes in the area have sold for to help you form your offer. This will help you avoid paying a ridiculous amount and paying only what the home is truly worth.
The home buying process is not a quick process. There are times when you may be outbid for a home by a cash offer. You may also not find the home you want right away. We typically say there are typically “88 types of turbulence” you can experience during a home purchase that can slow down your process or cause a hiccup. But don’t let that overwhelm you. If you are working with a trusted real estate agent and mortgage broker, such as ourselves, know that they will take care of you. Typically the home buying process can take up to 4 months. However, there are instances where it is much faster! It all varies. But try to be patient and know that soon you will have the home you have always wanted.
If you are looking to start your first home purchase you can fill out this loan application.
Recently the FHA loan limits have been increased. There are different loan limits depending on the area in which you live. For the Riverside and San Bernardino area in Southern California, the loan limits have increased to $500,000. This is good news for homebuyers looking in these areas who beforehand were unable to receive a loan over $355,350. For the Los Angeles and Orange County area the FHA loan limits have been increased to $729,750.
This is the first time that FHA has surpassed Fannie Mae and Freddie Mac loan limits. However, we assume that Fannie Mae and Freddie Mac will follow in line and increase their loan limits as well. Nothing is for certain, but we will keep you updated on the decisions that are made. Until that time comes, Riverside and San Bernardino areas can receive a loan limit with Fannie Mae and Freddie Mac of $417,000. The Los Angeles and Orange County areas have a limit of $625,500.
Here is a chart below showing the loan limits for FHA as well as Fannie Mae and Freddie Mac for the counties in California. If you would like to view Fannie Mae and Freddie Mac loan limits for a different state click here.
Wondering how you are going to afford a down payment for a home? This is a common concern for homebuyers, but we want to provide you with 9 tips to help you save for a down payment. You’ll be able to buy the home of your dreams much sooner.
This seems obvious, but the second you start thinking of wanting to buy a home, why not start setting aside money on a monthly or weekly basis. You will see how quickly it adds up. You can enroll for an automatic savings plan with your bank or have a portion of your paycheck get automatically transferred to you savings.
2. Borrow the down payment from your retirement plan
Check the provisions of your retirement plan. You can borrow funds from a 401(k) plan for a down payment or make a withdrawal from an Individual Retirement Account. Be sure you understand the tax consequences, repayment terms and/or possible early withdrawal penalties.
Obviously this option is only available for people who already live in a home. By selling your home you may be able to save additional funds if you can move into a less expensive house.
4. Reduce other higher interest rate debt
Debt is stressful, so if you are capable of paying off credit cards with high interest you will be able to start saving. Yes, at first your savings will take a hit and reduce, but the money you will save from higher interest rates will pay-off in the long run. Trust me!
5. Make a deal with the seller
You would be surprised but in some circumstances it is appropriate to ask the seller to carry a second-mortgage to cover your down payment. Typically, you will pay a slightly higher rate for this second mortgage.
6. Sell some investments
7. Get a second job and save your earning
You’ll be putting in extra work but it will be worth it in the end! Focus on your long term goal and understand it’s temporary.
8. Skip a year’s vacation
I know, I know… this seems awful, but try doing a local vacation that does not cost as much money. Also, keep in mind it’s only one year you are giving up a vacation. However, that will put you closer towards achieving your future goal of a new home (where you will make many more memories).
9. Gift from family
Parents and other family members are often anxious to help children buy their first home and may have the means to give you a gift of money for a portion or all of your down payment.
For other down payment tips you can visit our website.
Waiting to buy a home, when interest rates are extremely low will actual cost you more money in the end. Let me explain why.
Cost of Waiting Scenario 1
It makes sense to want to wait for house prices to drop before purchasing a home. However, while waiting, you aren’t considering the fact that interest rates may increase during that time. How do increased interest rates affect your home purchase? Take a look at the chart below.
As you can see the house price did decrease, but so did your buying power. If you would have purchased your home when the interest rate was at its lowest, you would have been able to buy more for your money. Instead, this scenario results in $37,000 less in buying power for the same mortgage payment.
Cost of Waiting Scenario 2
This second scenario shows the cost of waiting while risking an increase in interest rates. As you can see, a 2 point increase in interest rates increases the monthly payment for the same priced home by $311.
The overall TRUTH in the cost of waiting to buy a home, is the best time to buy is now! The market is in the best position for homebuyers with the lowest interest rates we’ve seen in over 50 years!