Are you a first time home buyer in 2013? Here is a first time buyers step by step guide which will illustrate the process of buying a home in St George Utah; this will have a 4 part series which can serve as a first time home buyers blog.
Here in St. George Utah, our real estate market is not necessarily friendly towards first time buyers. We have always had a reduced inventory of the coveted first time buyer home. The wish list for a first time buyer in St George Utah typically consists of: 1500+sqft, 3+ bedrooms, quiet street, good schools, newer and/or updated, decent size backyard, and typically under $200,000. The trouble is, when these homes hit the MLS and become active on the market, they are snatched up very quickly. If the home is priced very competitively they will likely receive multiple offers often going at, or above asking price.
How can a first time buyer get a home?
First, you’ll need to get pre-qualified with a reputable lender, preferably local. This is a step beyond a pre-approval, which is offering your social security number to a lending institution for a credit check for a response of: “we can give you a loan for $XX pending documentation review”. The next step is to produce the required documents that ALL lenders will ask for: tax returns, bank statements, pay stub receipts etc…each lender will have requirements which will enable them to convert your “pre-approval” into a “loan qualification”. Once you have this to the lender, and firm numbers of what it will cost for closing (also known as a Good Faith Estimate), you will be in a significantly better position to move forward knowing the price of the home you WANT to afford.
The price you CAN afford versus the price you WANT to afford
So once you’ve submitted your documentation to your lender, you may discover you can purchase a home for more money than you originally anticipated. At first, buyers may become excited at the thought that they can widen their search and begin to search for homes in higher price ranges they hadn’t previously considered. The important consideration will come at the end of the pre-qualification process when the buyer will discover not only how much their monthly payment will be, but also other factors they may not have considered: closing costs. In order to obtain a loan, there ARE costs involved and the actual cost will depend on a variety of elements such as: the type of loan you are obtaining, your credit score, and the final price of the home. Some costs will have to be paid at closing, this can add an additional $4,000 to $7,000 (on average) to your costs at closing (actual amounts will have to be obtained by the lender) in addition to the down payment.
Owning a Home
Once you have these figures, you may realize that you do not WANT to spend the amount that you CAN spend, simply due to the fact that you will have other things to pay for in life. Intelligent home buying will take into account that spending every dime you have on a house payment, makes a home owner “house poor” leaving no money for other desired and/or necessary purchases. Also, a buyer must realize that home ownership and home maintenance will no longer be free. Gone are the days of calling your property manager when the air condoner won’t work. Now it’s up to you to replace components that fail and keep up with everyday maintenance. Furnaces, water heaters, plumbing, lawn irrigation; these are only a few things that will likely fail over the years and will create an unexpected and necessary instant expense. It’s imperative to have money in your reserves to account for the unknown.
Other common overlooked expenses that a homeowner will be responsible for each month in addition to the loan payment are: property tax, homeowners insurance (these two are often added to the loan payment, so a buyer must confirm from the lender if their quote includes this), utility bills, and if applicable a Homeowners Association fee (HOA). These monthly additions can add as much as $300-$500 (on average), in addition to the loan payment (or “Principle & Interest”). A good lender will offer you a payment breakdown estimate so you’ll see exactly what your payment is for (of course they will not include the utilities). You will also have a breakdown of expected closing costs and all loan related fees itemized in a clear and concise manner. If your lender is not providing this type of information, my suggestion is to find another lender. You should know exactly what you’ll have to pay at closing as well as the monthly cost once you own the home. Realtors can offer you a referral for a reputable lender.
So now that you know what you CAN spend, what WILL you spend?
In my next three parts of this First Time Home Buyer series: How to Buy a House, I’ll discuss the strategies of finding a home, working with a buyer’s agent, negotiation property prices, the possibility for the seller to pay closing costs, tips for buying a house, and your next steps for your Utah real estate search.