Homeownership comes with a lot of responsibilities and a prospective new homeowner is wise to plan and prepare accordingly. Along with the financial responsibilities come the physical tasks associated with the upkeep and maintenance of your new place. However these responsibilities come with great rewards, as you enjoy the benefits of building equity, building credit, and building a life in a community by establishing long term roots. As we head towards the fall market, here are some tips for those of you thinking about buying your first home.
Gather Your Money
Determine your budget: You will be committing to a mortgage loan with an average term of 15-30 years. You will need a stable income and a maximum DTI ratio (debt-to-income) of 43% or less to receive a qualified mortgage as described by the Consumer Financial Protection Bureau. Lenders will measure your ability to repay money you borrow using DTI and other factors. Your monthly budget for home ownership will include the mortgage payment, property taxes, homeowners insurance (and homeowner’s association fees in some instances). You will also want to factor in home maintenance and higher utility costs as you determine your budget for home ownership.
Down payment: In addition to your monthly budget for home ownership you will need to consider the money needed for a mortgage down payment when purchasing a home. Mortgage down payments typically range from 3.5%-20% though you can get a USDA loan or VA loan (exclusively for veterans, active military members, and their spouses) for 0% down. Lenders will often require mortgage insurance for loans with down payments of less than 20% (though not on VA loans). There are different types of mortgage loans each with unique qualification standards. You can expect to pay $8,750- $50,000 for the downpayment on a $250,000 conventional mortgage loan. You will need to factor mortgage insurance into your budget if paying less than 20% upfront on a conventional mortgage loan.
Closing costs: In addition to your monthly budget, and mortgage down payment you will need to consider the money needed to cover the closing costs of your real estate purchase. Closing costs will typically range from 3%-6% of the loan amount: including appraisal fees, escrow fees, title insurance expenses, and other fees. You can expect to pay $7,500- $15,000 in closing costs on a $250,000 mortgage.
Pre-approval: When you have considered the money involved in home ownership and feel you have the means required you will want to get pre-approved for a mortgage from one or more lenders. Just like shopping sales for a deal, a savvy home buyer will look for the best mortgage deal for which they qualify. Lenders will consider your income, assets (including cash for a down payment and closing costs), DTI, and credit report, and require other documentation for approval. When approved, you will receive a pre-approval letter from a lender. You can start shopping for your home with confidence knowing what you can afford.
House Shopping
Hire a real estate agent: A buyer’s agent will help you every step of the way in your home search. Working with a buyer’s agent from Barrett Sotheby’s International Realty is your next step in buying your first home in Greater Boston. They will show you the properties that meet your criteria, attend showings with you, learn about your priorities, submit an offer letter to the seller when you find the perfect home and negotiate on your behalf after submitting an offer. There is a lot to navigate in purchasing a home, and your buyer’s agent will keep everything moving efficiently, and smoothly and communicate with you clearly every step of the way. Learn more about how a buyer's agent can help you secure your dream home in our recent blog post.
House criteria: Determine the type of home you would like (single-family home, condo, townhouse, duplex). Make a list of the criteria important to you: such as the number of rooms in a home, lot size (do you want a big backyard?), schools, neighborhood, and local amenities. Your buyer’s agent will factor all of your house criteria to create a relevant list for you to consider as you search for, and find, your perfect home.
Make an Offer
Offer: When you have found your perfect home in Greater Boston you will work with your buyer’s agent to draft and submit a formal offer to the seller. Your agent will help you determine the offer in consideration of the time the home has been on the market, the price of comparable homes in the area, competition for the home, and any necessary repairs and renovations. Your agent will also help you decide what contingencies to include (such as the results of the home inspection, and the appraisal) and how much earnest money to offer (earnest money is a good faith deposit typically 1%-2% of the home price held in an escrow account to cover some of the professional costs involved in the transaction if things go awry). When your offer has been accepted you can schedule inspections.
Schedule Inspections
Home inspection: The home inspection is a very important step to take after you have found what you believe to be the perfect home, and a wise contingency to include in your initial offer. The inspection will determine the condition of the home. It is relatively inexpensive ($300-$500 for a 2-3 hour single-family home inspection) and will provide valuable insight into any major repairs that will need to be made immediately or in the near future. Major systems (electrical, HVAC, plumbing) and structural components (foundation, roof, rooms, attic) are some of the items addressed. A home inspection will reveal any major issues. You can choose to request the issues be corrected by the seller, or negotiate a lower price from your original offer (you won’t be requesting corrections be made to normal wear and tear, just major issues). Sometimes a home inspection will reveal you walk away from the property and continue house shopping for something better.
Additional inspections: There may be additional inspections to consider in a specific area. Your buyer’s agent will be knowledgeable of the area and recommend which inspections would be to your advantage (such as indoor air quality, radon gas, toxic mold, and lead paint).
Negotiations
Negotiations: Depending on the results of the home inspection, or home appraisal, you may need to negotiate the price (this is why contingencies are very important when making an offer). Your buyer’s agent will negotiate on your behalf. When both buyer and seller agree on the price the closing process will begin.
Closing
Closing: It will take on average 30-45 days to close on a home. Closing day will take 1-2 hours as you sign the final paperwork, provide payment for closing costs and get the keys to your new home!
Barrett Sotheby’s International Realty has been working with buyers at every price point in Greater Boston and surrounding areas for 50 years. We look forward to helping you navigate the home buying process and find your perfect home. Contact our team today!
