Buying your first home is an exciting event, but it can also be intimidating. There are a lot of moving parts, in addition to finding a home that fits your needs and budget. Fortunately, with the right amount of preparation, the buying process isn’t as daunting as it may seem. With a little advice and planning, you should be ready to start life as a homeowner.
The Buying Process
Before starting to seriously look at properties, you need to determine your budget for a house or condo. Contacting one or two lenders to get pre-approved for a mortgage is a good way to find out an amount you may qualify for, which will help guide your search. It’s important to note that what the bank is willing to loan you – and what your budget can withstand – are not always the same thing. Work with your financial advisor before starting the process to ensure you aren’t over-extending yourself. No one wants to be house poor!
Building the Right Team
Let’s face it – buying your first home can be a stressful experience. That’s why it’s critical to assemble the right team of professionals to help you through the process. This typically involves:
• A real estate agent
• A loan officer or mortgage broker
• A closing attorney
• An insurance agency or broker
• A home inspector
Since you’ll be the point person coordinating the efforts of the whole team, be sure everyone is experienced and responsive. Personal recommendations are the best way to find quality professionals, but various consumer websites are also a great resource.
Before making the decision to buy, evaluate your expected holding period. If you are only planning on living in the house for a few years, it might not make sense to buy after factoring in closing costs, repairs and maintenance, and the costs of selling (the fees for real estate agents typically start at 6% of the purchase price and are paid by the seller). If you are open to being a landlord and coming up with another down payment isn’t a problem, holding onto the property as a rental could be an option.
Finding the best mortgage rate can be a balancing act. You should collect a few quotes because rates vary between lenders and even a slightly lower interest rate will lead to significant savings over the life of your mortgage. At the same time, each time you apply for a pre-approval, the lender pulls your credit which slightly lowers your credit score. Try requesting a “ballpark” estimate of your rate instead. Some lenders can do this just by looking at your personal information so you can narrow your search without impacting your credit score.
Building a solid budget will help reduce some of the stress as you move through the process. Work with your team of real estate professionals to get estimates on the cash expenses. Some common costs associated with the process are attorney fees (also title and recording fees), loan application fee, a home inspector and appraisal, condo fees, taxes held in escrow and insurance.
Having a home inspection performed by a quality provider can be one of the best ways to ensure a sound purchase. Ideally, bring a trusted friend or contractor familiar with general home repair along for the inspection to ask questions and be another set of eyes. Unfortunately, home inspectors sometimes miss things and large unexpected repairs can be a real burden for a new homeowner.
This glimpse into the process should be a good starting point as you start down the path to homeownership. Good luck and enjoy your new home.
Financial Planning Association of Massachusetts member Kristin McFarland is the Director of Strategic Partnerships with The Darrow Company in Boston. The Darrow Company is a fee-only asset management and financial advisory firm focused on building and preserving the wealth for their diverse client base.
Kristin McFarland is an investment adviser representative of The Darrow Company, Inc., an SEC registered investment adviser located in Massachusetts. The material contained in this article is for general information only and should not be construed as the rendering of personalized investment, legal, accounting, or tax advice.