Tips For First Time Home Buyers And Mistakes To Avoid

This article covers Tips For First Time Home Buyers And Mistakes To Avoid

Many renters do not realize that they can qualify to be homeowners. We will cover Tips For First Time Home Buyers and mistakes to avoid during the mortgage process:

• Many renters think that they need 20% down payment in order to be first time home buyers
• They are also under the belief they need great credit as well as reserves to qualify for a mortgage
• That is not the case
• As long as borrowers have documented income and are able to afford housing payment borrowers will most likely qualify for a mortgage

General Mortgage Lending Guidelines For Home Buyers 

FHA loans only require a 3.5% down payment on a home purchase as long as minimum credit scores are at 580.

• Buyers with low credit scores can still qualify for a mortgage loan with compensating factors
• Buyers can qualify for a residential FHA loan with credit scores between 500 and 579 with a 10% down payment with compensating factors

Compensating factors are strengths borrowers can provide lenders such as the following:

• larger down payments
• assets
• rental verification
• strong job history

Other documented income that cannot be used to qualify as income in mortgage process such as bonus income, part-time income, overtime income, and other income.

Down Payment And Closing Costs

VA Loans and USDA Loans do not require any down payment:

• Closing costs?
• Don’t worry about closing costs
• There are always closing costs with a home purchase

Here are examples of closing costs:

• title charges
• attorney charges
• transfer stamps
• escrows
• other costs associated with the purchase of the home

Sellers Concessions To Cover Closing Costs

FHA allows up to 6% of sellers concession towards a buyer’s closing costs:

• VA Loans allows up to 4% of sellers concessions towards a home buyer’s closing costs
• Conventional loans, Fannie Mae and/or Freddie Mac, allows up to 3% of sellers concessions towards a buyer’s closing costs

Investment home mortgage loans allow up to 2% of sellers concessions towards a home buyer’s closing costs.

Tips For First Time Home Buyers Getting Sellers Concessions

A sellers concession is when a home seller will give a home buyer a certain amount of money to help the home buyer with their closing costs:

• Nothing is for free so why would a home seller give away free money to help the home buyer’s closing costs?

It is all negotiation:

• If a home seller wants a bottom line of $150,000
• the home seller and home buyer can agree to inflate the purchase price to $155,000
• where the home seller will give the home buyer a $5,000 sellers concession towards the home buyer’s closing costs

Understanding Closing Costs

There cannot be an overage in closing costs:

• If a home buyer does not use up 100% of the closing cost credits, then the excess seller’s concession goes back to the home seller
• If the sellers’ concession does not cover 100% of the closing costs, lenders can give the home buyer a lender’s credit towards the home buyer’s closing costs for a slightly higher interest rate

If the home buyer cannot get a seller’s concession towards a home buyer’s closing costs, then the mortgage lender can possibly cover all or most of the home buyer’s closing costs with a lender credit.

How Do First Time Home Buyers Go About Searching For Homes

First time home buyers can begin their home searches right away prior to hiring a realtor.

• Prior to or during the home search mission, buyers should consult with a mortgage lender to see whether they qualify for a mortgage
• Need to find out the maximum mortgage loan amount they qualify
• Lenders will then issue a solid pre-approval
• A pre-approval letter is a ticket to view the homes that buyers are interested and enter into a real estate purchase contract
• This way buyers will know what price range of homes they should shop for

The majority of home searches start with going online.

• Go to Google and enter homes for sale in the particular area interested in and enter criteria to get hundreds of results
• Can eliminate many homes that do not interest you by viewing the virtual tours and the photos each home has

After viewing many homes of interest, buyers can then consult with a realtor to start visiting homes.

How Long Does It Normally Take To Purchase A Home?

This is a tough question to answer and depends on the particular individual.

• The more prior due diligence first time home buyers do, the quicker they will find a home and have it under contract
• There are times where first time home buyers will gravitate towards the first home they visit and do not want to see any more homes
• There are first time home buyers who are hard to please and will look for weeks, months, and even years
• Unless building a custom home, it is very unlikely to find a home that suits all needs
• For example, the home can be perfect with the number of bedrooms, bathrooms, layout
• But the lot size might be small
• The house can have the perfect yard and located in a perfect neighborhood
• But the home can be small and the layout may not be the best for the first time home buyer

Most motivated home buyers will normally have a home that they like and have it under contract within 30 days or less from the day they start housing shopping.

Tips For First Time Home Buyers Hiring Realtors

Working with a realtor that have the same interests in common is extremely important.

• Interview a few realtors over the phone and meet them
• Go to their websites or third party websites like Zillow.com or Trulia.com and check out their reviews and testimonials and see what the previous clients have to say
• Google the realtor’s name and see if there are multiple complaints against them
• If there are, question them about it
• There are always two sides of the story
• Just because one or two clients write a bad review about a particular realtor does not mean that the realtor is incompetent
• I have met realtors who I truly sincerely respect
• I saw them in action on how hard they work in helping first time home buyers
• I have witnessed realtors who work with homebuyers who are purchasing a very small priced home that have major credit issues
• Without their hard work, the deal would haven’t gotten closed
• Realtors make money on a percentage of the home sales price
• The number of hours they put in on a $50,000 real estate transaction, it is like working for free

A professional hardworking realtor will always be available, listen to needs, and always return phone calls promptly.

Tips For First Time Home Buyers On Amount Of Viewings

It is recommended buyers see at least 3 to 5 homes.  Seeing more than that and possibly more than a dozen homes, it will most likely confuse the home buyer and will not be able to remember all the homes.

In a hot real estate seller’s market, first time home buyers may encounter multiple purchase offers on the same property where they need to put in the offer as soon as possible.