So, you want to buy a home? Great idea! It’s the American dream and it’s more possible than you probably realize. This is probably the best buyers market we will see in our lifetimes.
What makes this the best time to buy?
- Prices are incredibly low
- Interest rates are so low that borrowers are saving hundreds of dollars a month
- The quantity of available homes is mind boggling
- The government now has tax credits and down payment programs for first timers
The question I come across most often from first time home buyers is “How do I get started?”. This series of blogs will get you up to speed on what you need to do to get prepared and walk you through the whole process.
Step 1: Get your hands on some cash.
The days of 100% financing are gone like the wild west. You will most likely need some sort of down payment. Keep in mind there are Ohio government programs like OHFA that you could qualify to get most of your down payment paid for. The lowest down payment I have seen lately is 3.5% of the purchase price for FHA financing. Conventional is right behind that with 5% for good credit.
To put that into perspective, lets say you buy a $100,000 dollar home (which is a lot of home in my market) you will need minimum $3,500 for a down payment or $1,750 for a $50,000 home. Most lenders accept gifted money as well, so if you can borrow from Mom, Dad, Grandparents, Uncle Rob, that will work. There are also government programs to help you with the down payment. OHFA is a state program in Ohio that will pay your down payment and charge you a slightly higher interest rate on your loan.
There are a few additional items you may need to pay for, but many costs can be paid for by the seller if you ask them to. These fees are unique for every market.
- Appraisal – Approximately $150 – $400 depending on which appraisal the lender requests. The appraisal is required by your lender to make sure your new home is worth what you are borrowing. Most of the time, the appraisal comes in at or above the purchase price. You will likely be paying for this.
- Inspections – I will be going more into detail about inspections in this series, but you may wish to get your new home inspected by professionals. There are a few typical inspections. These include general home inspections($200) and wood destroying insect inspections($50-$75). There are other inspections available if you are concerned such as mold, radon gas, and lead based paint.
- Title Fees – approximately $500 – $1500 depending on your purchase price and loan amount. In order to own the property, you will need to transfer the title to your name. This is done by a third party title company.
- Lender Fees – Varies depending on the lender and the loan amount. You can work with your loan officer to keep these down.
- Homeowner’s Insurance – Your first year will need to be paid by or at closing if you are getting financing.
Again, you can ask for the seller to pay for your closing costs and inspections at the time of the offer. So in essence, you might only require the money for part of the down payment, appraisal, and homeowner’s insurance. If the seller is unwilling to pay the closing costs, you could always raise the purchase price on a counter offer so they net the same amount. This way you don’t have to pay out of pocket for most of the costs of the transaction.
There is something called earnest money deposit that you could put forward with your offer to show you are earnest in purchasing the home and will be applied to your costs at closing. This can help to get your offer accepted, if the seller sees you are willing to risk money. If you rescind on your offer for no apparent reason, this money is forfeited to the seller. If you fail to get financing, the inspections are unsatisfactory, you lose your job, or any other good reason for breaking the contract, you will get this money back. This deposit can be any amount you chose and is optional, however, many foreclosed properties have a minimum amount required for acceptance.
It’s a good idea to have the first couple months of mortgage payments saved up also. You can also recoup the costs of buying a home if you purchase one in 2009 thanks to the stimulus package. First time home buyers are eligible if they or their spouse haven’t owned a home in the previous three years. They are eligible for $8000 tax credit that you don’t have to pay back if you own the home for more than three years.