Congratulations, you have decided to embark on the next chapter in your life, and in the Real Estate World, we like to call this chapter, the First Time Homebuyer chapter. No matter the age of the buyer, this is a major step in one’s life. This step is unique to every buyer because each individual comes from all backgrounds and in some cases, they may embark on this journey on their own.
There are a variety of options and steps that exist for first-time homebuyers. Indeed, in many areas like Orange County, NY, you won’t be buying a traditional, single-family, detached home. Depending on your lifestyle and location preferences, purchasing an apartment, condominium or townhouse might be your only choice. However, each option carries with it a particular benefit that includes building equity and, generally, an increase in resale value over time.
The long-standing traditional thought, when most people think of buying a home, is the traditional single-family home. At the moment, the median price for this type of real estate is $317,000. There are outliers where cities may have a median price double or triple that number, as well as homes that are available for a fraction of the price. Single-family homes are the most widely available real estate, and they tend to have great resale value. However, there are many ways to get ahead with real estate outside of the single-family home.
Condos, townhouses, and apartments all have similar living conditions: you’ll have a shared wall that separates your living space from your neighbors, which might be an easy step up when looking to get out of your current living situation. Additionally, each of these options often has additional amenities such as a community pool, a gym, or a recreational room. Furthermore, since you own the property, you’re able to paint and redecorate as you see fit. The drawback to this type of purchase is that you don’t necessarily own your property that the home rests on. An added benefit is that, usually, property managers are tasked with maintaining the landscape and keeping the external property clean. Keep in mind that there are often monthly, quarterly or yearly fees associated with these property types. Make sure to query the seller about additional costs that may be incurred due to these fees. Also, keep in mind that single-family homes can have Homeowners Associations and their associated fees.
Condos and townhomes are generally more affordable than traditional single-family homes and apartments. Therefore, they can be a great option for first-time homebuyers. Indeed, in a city such as New York, your selection is limited to apartments, which can greatly exceed the cost of buying a home, condo, or townhouse. However, given the high demand for New York City property, the resale value of an apartment also tends to be on the higher end.
Contrary to the sayings of common home buying misconceptions, if you’re not ready to go it alone when purchasing property, then teaming up with trusted friends who can jointly purchase a home with you is another option that will allow you to buy a home without having to tackle marriage and married home buyer considerations. This doesn’t need to be a traditional house. Buying a condo, townhouse or apartment is an equally viable choice.
A variation of purchasing with a friend is to buy the property and then rent out a room either to that friend or another reliable individual. This is a particularly feasible option to generate income or help pay down the mortgage. Additionally, if you decide that you’d like to invest in more real estate at a future time and then rent out those properties, this provides a training ground for what it’s like to be a landlord (which has far more responsibility than many realize). Keep in mind, that other arrangements should be made if you decide to go down the Landlord route.
There is, however, a challenge or two associated with buying real estate with friends (or family members for that matter): if one of you loses your job, how will you handle the temporary loss of an owner’s income? Also, it’s important to be mindful of who you’re renting out the room to and particularly if it’s not someone you’ve known for a long period.
While the short-term benefit of having extra money for a mortgage payment and splitting the utility bills is enticing, it’s prudent to have a “what if” action plan in place for the long term.
wadXO% Building equity through buying property is an excellent investment, and the benefits of homeownership for the current generation are vast. Fortunately, your choices for doing so are in abundant supply. Whether you choose a traditional home, condo, apartment, or townhouse, there is a home out there that fits both your lifestyle and your budget. Also, remember that in the current real estate climate, a buyer must act fast and not sit and wait. Homes are not sitting on the market for long.
A misconception that home buyers should be aware of is that FHA loans are not just for first-time homebuyers. Loans backed by the Federal Housing Administration are available to everyone, not just first-time home buyers. The 3.5 percent down payment program is available to all buyers, as well. However, there are some FHA programs designed specifically for first-time buyers.
Under FHA guidelines, you qualify as a first-time home buyer if you have never owned a primary residence or if it has been three years since the last time you owned a primary residence; there are even exceptions to the first-time buyer rule, such as when you divorce or when you owned a home that wasn’t attached to a foundation.
If you’ve never bought a home before, you qualify as a first-time homebuyer. However, according to the FHA and many lenders – as well as many first-time buyers’ down payment assistance programs – you can still qualify as a first-time buyer if you have not owned a primary residence for at least three years. Let’s look at what other criteria would also qualify you as a first-time buyer if:
Some programs have different requirements, so ask your lender or the organization offering you down payment assistance to find out whether you qualify as a first-time buyer.
Since we are discussing facts for first-time home buyers, we should also dive into some real estate buying tips someone should know. First-time house buyers should follow several steps to make sure they’re getting the best experience possible. These five tips can get you started on the right path:
1. Check your credit before you apply for a mortgage loan. A mistake on your credit report could cost you thousands of dollars in interest payments over time, so make sure your credit report is completely accurate before you allow lenders to check it. Borrowers with higher credit scores are eligible for lower interest rates and better terms on a loan. It’s a good idea to improve your credit score as much as you can before you apply for a loan. People who have higher credit scores are typically eligible for lower interest rates.
2. Organize all your documents and provide them to your lender promptly. A snag in the underwriting process can drag out your loan application process for weeks, which means you could miss out on the perfect home. Make sure your W2s, pay stubs, tax returns and other important documents are all in order so you can provide them to your lender quickly.
3. Figure out how much house you can reasonably afford. Don’t forget to budget for your down payment, homeowners insurance, taxes, and other expenses associated with owning a home, such as repairs and improvements.
4. Use our Home Affordability Calculator to find out how much house you can afford
Work with a real estate agent. It doesn’t cost buyers anything to work with a real estate agent, but there are tremendous benefits. Your agent will help you find homes, schedule tours, and look out for your best interests every step of the way.
5. Compare, compare, compare! Shop around for the best mortgage rates and terms, which vary between lenders. One lender may have a loan product that’s perfectly tailored to your needs, so keep looking until you find something that works.
If you’re buying a house in the Orange County area, you’ll need to be prepared for the importance of property taxes, which are different in each state. Home prices are largely driven by demand within certain regions, so a large home in one city may be much more expensive than a large home in another. In the Orange County area, the average property tax is $5,586 per year for a home worth the median value of $312,100:
As a first-time homebuyer, you need to know that not all mortgages are created equal. Different lenders offer different loan products, and each has its requirements for qualifying a borrower; some lenders may allow you to borrow with a credit score of 540, for example, while another requires a minimum score of 620.
When you borrow a mortgage, your lender will want you to pitch in some of your own money toward the home to show that you’re invested in it (and therefore less likely to default on your payments). Down payments generally range between 3.5 and 20 percent of the home’s purchase price, but some programs allow you to pay less – and you can always put down more. If you put down less than 20 percent, you’ll most likely be required to buy private mortgage insurance and continue paying for it until you’ve built 20 percent equity in your home.
There are thousands of mortgage loan products available, so as a first-time buyer, it’s a good idea to shop around for one that fits your needs best. Your lender should be able to offer you several options based on your credit score and the amount you want to borrow; if you don’t have a preferred lender, you can ask your real estate agent to refer you to someone or you can find one on your own. If you’re finding your lender, look for one that:
When you own a home, the ideal percentage of your gross monthly income that should go toward your mortgage is 28 percent. That means if you make $1,000 per month, no more than $280 should go toward your monthly mortgage payment and related expenses, such as taxes and homeowners insurance. (Taxes and homeowners insurance are often, but not always, rolled right into your monthly mortgage payment.)
First Homebuyers should be aware that when lenders evaluate your application for a loan, they’ll check your debt-to-income ratio, or also known as DTI. Your DTI is the amount of debt you pay each month concerning your gross monthly income. Lenders typically want your DTI to be less than 36 percent, with 28 percent or less going toward your mortgage payment. This gives lenders a sense of security that you won’t be too financially strapped to make your payments. Your DTI includes all your monthly obligations, such as:
Many first-time homebuyers are eligible for tax credits, such as:
This is an exciting chapter in a first-time home buyer’s life. It is best to know the facts and know the steps of what it takes to buy a home. Let us at OC Homes walk you through the process.