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FIRST TIME HOME BUYER GUIDE

THINKING ABOUT BUYING YOUR FIRST HOME?

Buying a home can be one of the most stressful financial investments you make in your lifetime. 

With so many different variables, factors, and requirements, it’s no wonder home buying produces levels of anxiety comparable to losing a job or planning a wedding. 

Here at M&D Real Estate, we have your back and want to make sure you have all the tools you need to have the most stress-free home buying experience possible. 

Below you will find a comprehensive guide detailing how to prepare to buy a home and what to expect throughout the entire process.

Step 1: PREPARE YOUR FINANCES

Financial Preparation for Buying Your First Home

Before you start browsing the market for your dream home, you must set realistic expectations for what you can afford. 

  • Assess your current financial wellbeing to prepare for expenses such as the down payment, closing costs, and moving costs. 
  • You should have enough money saved up to account for all these expenses before considering starting the home buying process.
  • Look at your monthly spending habits, including food, car payments, phone bills, rent, utilities, entertainment, money sent to savings, and any other debt. This will give you an idea of what monthly mortgage payment is affordable for you. 
  • Divide your monthly income by these expenses to calculate your debt-to-income (DTI) ratio. An ideal DTI ratio should be around 35% to be considered a low-risk borrower. Keeping your DTI ratio low will also give you a comfortable cushion to cover things like food, entertainment, and vacations.
  • Check your credit score to determine what type of mortgage you qualify for and what interest rates you may be offered. There are number of credit bureaus you can get free credit reports from including Experian, Equifax, and TransUnion. While you can still get an FHA first-time homebuyer loan with a low score in the 500’s, a score of at least 620 is the baseline for a conventional loan. A score of 760 or higher will likely qualify you for the most favorable loan rates.  

Step 2: GET PRE-APPROVED FOR A MORTGAGE

There are a few types of mortgages to choose from with different expenses and eligibility requirements.

  • Conventional mortgages are the most common mortgage loan offered by most lenders that usually require a credit score of 620 or more. These loans are often the best option for borrowers with strong credit.
  • FHA loans are mortgages insured by the Federal Housing Administration that have more lenient requirements for credit scores, allowing borrowers with scores in the low 500’s to still secure a loan. Interest rates for these loans tend to run a bit higher than conventional loans.  These loans are popular amongst borrowers with poor savings or credit issues.
  • Every mortgage company is different and will possibly have requirements for investments, credit scores, and debt-to-income ratios.
  • When selecting a mortgage, you also have term options. Most buyers go for a 30-year fixed rate mortgage. 
  • “Fixed rate” means the interest rate you accept the loan at will remain locked in for the entire duration of the mortgage. These terms appeal to borrowers who plan to stay in their home for the foreseeable future. 
  • Adjustable rate mortgages are also available and usually start at a lower rate for a fixed period, then adjust up or down depending on the market. These loans appeal to borrowers planning to keep the loan for a limited time. 
  • There are also options for 15-year mortgages, which typically offer a lower interest rate with larger monthly payments. Take time to calculate which option will be the best financial decision for you. 
  • Mortgage rates and terms tend to vary from lender to lender. To ensure you’re getting the best offer, get mortgage quotes from multiple lenders. Request a loan estimate form from each lender and compare apples to apples. 
  • Keep an eye out for changes in interest rate and lender’s fees. Some lenders will charge a large fee with many hidden fees within, while others will spell it out fee by fee. Lenders may offer optional fees, such as discount points, which can be paid to lower interest rates. 
  • Be wary, some lenders may quote a lower rate to “buy down” the rate and charge you with hidden fees somewhere else. 
  • This is where your M&D Real Estate Agent can help you. Also, check out first-time home buyer programs for assistance with down payments and closing costs. 
  • The Texas Department of Housing and Community Affairs (TDHCA) has partnered with a number of lenders to offer first-time buyer’s benefits.
 

Getting pre-approved for a mortgage will validate you in the eyes of many home sellers and real estate agents. A pre-approved mortgage is an offer from a particular lender for a loan with set terms. Having documentation proving a lender see’s you as a possible borrower can put you a step ahead of other buyers who skipped this process. You will need to have all your finances in order to get pre-approved, so take care of this step when you are ready to begin searching for a home.

Step 3: SEARCHING FOR A HOME

Searching for a Home to Buy

At this point in the process, you’ll want to find and begin working with a qualified realtor of your choosing.

  • A good realtor will understand the area in which you are searching, help keep you within your budget, and negotiate effectively on your behalf.
  • Ask for referrals from friends and family and check for reviews on any realtors you take into consideration.
  • Ask potential realtors about their experience working with first-time home buyers, and make sure they have closed deals in your area.
  • Note how potential realtors communicate with you, as honest communication will be essential throughout the rest of the process.
  • Our realtors here at M&D Real Estate have a wealth of experience and testimonials, having served countless clients in the DFW Metroplex.
 

It’s finally time to begin looking for a home! Having a local realtor familiar with your area of choice can help provide invaluable information to narrow down certain neighborhoods and communities you feel would best fit you, all while remaining within your budget. 

  • Think about the type of home that would suit you best. Would you prefer to live in a single-family home, condo, or townhome? 
  • Are you looking for something temporary or permanent? 
  • Do you want a new-build with customization options and no need for renovations or would you rather look for a fixer upper under budget with better value? 
  • Make a wish list of everything you want out of your home purchase, and work with your realtor to single out the best options available on the market.
 

Once you have found a home of your liking, it’s time to tour the property to make sure everything is in good condition. 

  • Attend a showing or an open house with your realtor to ensure you don’t miss out on identifying any issues or complications with the home.
  • Do your best to visit the homes you are considering in person. Post Covid-19, virtual open houses began to soar in popularity. Feel free to check out these virtual tours to get an overview of the property, but make sure to visit in person as well if you are seriously considering making an offer.
  • Even if it looks like the perfect home online, it’s wise to confirm the condition with a live visit.
  • After the showing, look around the area a bit. Is the community suited to your liking?
  • Is the commute to your place of work manageable? How bad is local traffic? Questions like these should be running through your head as you tour the area.

Step 4: PURCHASING A HOME

Once you find a home that fits all your requirements, do not hesitate to make an offer.

  • Especially in a seller’s market, even a slight delay can make the difference between ownership and disappointment.
  • Have your realtor provide you with comparable listings in the area and decide on a competitive offer.
  • To remain within budget, take closing costs into consideration when making an offer.
  • Your offer should include any applicable contingencies to protect you from complications. A contingency is a clause that specifies a requirement that must be fulfilled for a contract to become legally binding.
  • Home inspection and appraisal contingencies will allow you to walk away from a home that is being improperly valued or has certain issues.
  • M&D real estate agents know the current mark, lean into their wisdom when it comes to making your offer and negotiating.
 

Now that you’ve made an offer that offer can be rejected, countered, or accepted, look to your realtor to help you negotiate the best deal possible.

  • You can negotiate with the seller to cover some of the closing costs or renovations, among other things. Though certain negotiation options depend on the market that you are in.
  • Keep in mind that buyers have less negotiation power and leverage in a seller’s market. In these markets, you may get caught in bidding wars and be priced out of a home you wanted.
  • During these times, remain calm and understand you may not get the first home you make an offer on.
 

Once your offer is accepted, hire a home inspector to inspect the home. 

  • In most cases, the buyer must find and pay for the inspector.
  • Ask your realtor for suggestions on qualified local inspectors and check online for reviews and testimonials.
  • The inspector will check the interior, exterior, kitchen, bathrooms, plumbing, electrical, and other miscellaneous features around the house.
  • Attend the inspection with your realtor to get clarification on any issues, although do so at the end of the inspection so as not to distract the inspector and cause them to miss something.
  • If the inspection reveals any defects or issues, you may have the seller pay for repairs or leverage your inspection contingency to walk away from the deal all together.
 

Before closing on your new home, you should purchase home insurance to cover the cost of repairs or damages.

  • Again, make sure you compare insurance companies for your best rates.
  • Buy enough insurance to cover the cost of rebuilding the home.
  • Your lender will require you purchase home insurance to protect their investment. 
  • At this time, do one final walkthrough of the home to verify the condition, and you should be adequately prepared to attend your closing. 
  • Look over the finalized paperwork with your realtor or an attorney to endure you don’t miss any clause that could impact you for years to come. 
  • All that’s left to do is sign each document at the closing table, and you will have become an official homeowner! 

 

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