ARE YOU READY TO BUY A HOME?

Buying a home is one of the largest purchases you’ll ever make. So you’ve got to really think it through. When’s the “right time” to buy your first home? As soon as you’re able to! 

Homeownership offers lots of benefits. But before you start house shopping, you need to think about whether owning a home is right for you — and what it will really take to buy and maintain a home. Consider the pluses and minuses of homeownership, the costs involved, and how to decide if you’re ready to buy. If you think you’re not ready yet, you can take the necessary steps to strengthen your financial picture.

If you have been in the military you can also speak to a loan originator to see if you qualify for a Veterans Affairs (VA) loan. Also, check into you Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS) for the area you’re considering.

Download Are You Ready to Buy a Home (PDF)

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DEVELOP A STRATEGY FOR BUYING YOUR FIRST HOUSE

Before buying your first home, it’s important to consider your situation. If you decide you’re ready to be a homeowner, it’s a good idea to shop for a mortgage loan before shopping for your new home. Follow these tips for creating your own homebuying plan:

Decide what you need in a home. Think about square footage, number of bedrooms and bathrooms, features like a garage, fenced yard, neighborhood, and proximity to highways, public transportation or shopping.

Create a strategy for saving the money you’ll need to buy a house. List all of your expenses for a month, and then decide what you can cut back on and for how long. The time it takes you to save will be different based on your goals, cash flow, and other circumstances. Review your progress once a month to see how well you’re doing. Creating and following a budget is a great way to get started. Service members have some specific needs to consider when home buying.

If you have a family, the whole family is part of your financial picture. So consider getting them involved in the planning process. Sit down as a family to discuss the goal of owning a home. By getting everyone working together toward the same goal, you can avoid conflicts about how money is being spent, and save the money you need even faster.

Tracking what you spend will help you stick to your financial strategy. Keep your record-keeping system as simple as possible so that it doesn’t take too much time.

BEFORE YOU GO HOUSE SHOPPING

If you’ve decided you’re ready to buy a home, there are some important steps you need to take before you go house shopping. You’ll want to evaluate how much you can pay, choose a lender, and get preapproved for a loan. Many financial experts suggest you get approved for your mortgage before you shop for your home to make sure you know what you can afford and are comfortable paying.

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SELECT A REAL ESTATE AGENT

A good real estate agent can help you define what you want in a home, search for homes in neighborhoods that meet your needs, and provide you with data on recent home sales in the area. Agents can also help answer questions about properties that interest you, for example, tax rates and building code regulations. When you find a home you want, your agent can help you put together an offer and act as an intermediary between you and the seller. They can help you come to a deal more quickly and easily.

Consider interviewing at least 2-3 agents. Tell them what you’re interested in. Find out if they have experience in the area where you hope to buy. Ask if they can provide additional information about a property or neighborhood, then see how well and how quickly they respond to your request.

How to find an agent

  • Ask family, friends, or neighbors for referrals
  • Look for agent names on For Sale signs in neighborhoods that interest you
  • Ask your mortgage lender for suggestions
  • Visit the Web sites of local realty companies

HOME BUYING STEPS

There are lots of steps involved in buying a home. It can seem confusing but understanding the basics of the home buying process can make it go smoothly. Before you begin house shopping, consider attending a class for first-time homebuyers, figuring out what you’re looking for and how much you can pay, and getting preapproved for a loan.

Read these steps to learn how to determine a housing budget that’s comfortable for you.

  1. Review your monthly spending plan and identify.
  2. Calculate how large a monthly mortgage payment you can afford.  
  3. Decide how large a mortgage payment you are willing to make. Don’t forget to factor in cost of utilities, maintenance, insurance, taxes, etc.
  4. Determine how much money you’ve saved for a down payment and closing costs.
  5. Talk to a home mortgage consultant about financing options that fit your needs.

Note: As a general rule, you can estimate how much home you can afford multiply our after-tax annual income by 2.5 to estimate a top purchase price. To estimate your maximum recommended monthly housing payment you can multiply your after income by 28% and divide that number by 12. As a guideline, your monthly mortgage payment (principal, interest, taxes, and insurance) should not exceed 28% of your gross monthly income.

Once you’ve found a reputable real estate agent, you can begin to look at houses — while this may seem like fun some find this stressful. You’ll want to pay attention to location. Think about everything from work, local stores and restaurants, to traffic patterns. If you’re considering buying a home in a location that’s far from where you currently live, be sure to schedule a trip from the new location you are considering to the places you often go. This will help you better understand if the new home location is convenient for you.

You may see a lot of houses while you’re on the hunt for a new home. Be sure you’re thinking your criteria — location, school districts, age of the home, foundation, roof, windows, etc. Try to see beyond the current paint color and décor. If you find a house you love, slow down. Resist the emotional response and instead make a list of pros and cons. Take your time in making a decision

After you find the home you want, you’ll need to make an offer. Your real estate agent will help you develop the offer and present it to the seller.

The asking price and selling price of homes are often different. When you make your offer you will propose a purchase price, the time frame in which you’d like to take ownership, the amount of your down payment and any conditions that must be met prior to sale (such as required repairs or inspections). Buyers and sellers often negotiate these terms, including price and closing date.

You will be required to make a partial down payment deposit often called an “earnest money” deposit to show your offer is a serious one. Your agent will be able to advise you on how much of a deposit you may need to make.

When you make an offer, the seller will either accept, decline or counteroffer. If your offer is accepted immediately, you have a deal with all the terms you offered. If the seller, declines perhaps there was a better offer. If the seller makes a counteroffer, you have another opportunity to negotiate. Your real estate agent will be your go-between with the seller’s agent during negotiations. The goal of negotiation is to achieve mutual agreement of terms that both you and the seller are satisfied with.

When your offer is accepted by the seller, you reach a sales agreement. This means that both you and the seller have defined the price and terms for the sale and a sales contract is drawn up. Once you and the seller sign it, the contract is a legally binding document. This process is often referred to as “going into (or under) contract.”

Have a professional that you trust review the terms and conditions of the sales agreement before you sign. Ask questions about anything you don’t understand. Never sign a contract that’s blank, incomplete, or that you don’t understand.

After your contract is signed, your next step is to arrange for a home inspection to identify any repairs the home may need. You’ll want to know as much as possible about the condition of the house. Major repairs can become a negotiating point with the seller.

Your real estate agent will be able to provide you with a list of professional home inspectors who can offer their opinion. Your agent can also advise you about arranging any special inspections that may be needed for things like termites, lead paint, or soil contamination. Having an inspection can help to make sure your new home will be healthy and safe for your family.

Some sales agreements specify that the offer is “subject to inspection” — giving the buyer the opportunity to back out of the deal if the inspection results are not to their satisfaction.

Often a mortgage loan requirement, your lender will have the home appraised to determine its fair market value. This is to confirm that the home appraised value is equal to, or more than, the loan amount. If your home appraises below the sales price, this is an opportunity to negotiate the sales price. Most lenders will not offer financing on a home for more than what it’s worth.

The official notification from your lender that your home loan has been approved, including a confirmation of the amount.

Finalizing the sale, also known as closing, is the last step in your home purchase. At your closing, ownership of the property is transferred from the seller to you. It’s a formal meeting with a closing agent, a professional who prepares the official documents related to the sale. Depending on where you live, this individual is usually an attorney or title agency representative. Your real estate agent and the seller’s agent may also attend.

When you are ready to schedule your closing date, everyone involved will be contacted. A time will be set for the closing to take place at a convenient time and location. The closing procedure and associated fees vary depending on where you purchase. You will be notified of the exact amount you need in order to close and any additional documents you may need to bring prior to closing.

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avoiding discrimination

Federal law prohibits housing discrimination based on your race, color, national origin, religion, sex, family status, or disability. If you have been trying to buy or rent a home or apartment, and you believe your rights have been violated, you can file a fair housing complaint. You can file a complaint by contacting the U.S. Department of Housing and Urban Development via email, phone, or mail.

They will ask you to provide:

  • Your name and address.
  • The name and address of the person your complaint is about.
  • The address of the house or apartment you were trying to rent or buy.
  • The date when the incident occurred.
  • A short description of what happened.

U.S. Department of Housing and Urban Development (HUD)

ITEMDETAILS
Web site:www.hud.gov
Toll-free phone:1-800-669-9777
Mailing address:Office of Fair Housing and Equal Opportunity

Department of Housing and Urban Development

Room 5204
451 Seventh St. SW
Washington, DC 20410-2000

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PREPARING FOR CLOSING

As you get ready for your closing day, you have many details to handle.

In the weeks leading up to your closing, you should:

Be sure to get several insurance quotes. Check with the company that handles your automobile insurance. Insurance companies often offer a “home-car” discount, usually 5 to 10%, to customers with more than one insurance policy. If the property you’re purchasing is in a flood zone, you’ll be required to purchase a flood insurance policy.

with your lender to make sure you understand all the requirements. Set the closing time and date based on your sales contract and the loan commitment expiration.

The GFE and TIL statements are two documents that the lender must give to a homebuyer within three business days of application. The GFE gives an estimate of the costs that the buyer will have. The TIL provides the true cost of credit to the borrower. The TIL contains the annual percentage rate, finance charge, amount financed, total of payments and payment schedule.

You should make sure that the transaction and fees are what you agreed to. The Closing Disclosure is a document prepared by the closing agent that itemizes all charges related to the real estate purchase in detail.

of your property has been ordered. Check with your closing agent or attorney.

If you’re a renter, let your landlord know you’ll be moving. Complete change-of-address forms available at the post office. Arrange for utilities to be disconnected at your current address and to take over accounts at your new home. Plan your actual move.

Conduct a final walk-through of your soon-to-be home.
Make sure all inspections and repairs in the purchase agreement have been completed.
Get a certified or cashier’s check from the bank to pay your closing costs. Cash or personal checks are generally not accepted.

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THE COST OF HOMEOWNERSHIP

There are a variety of expenses involved in purchasing and maintaining a home of your own. Click each cost to learn more.

A portion of the sales price paid to the seller by the homebuyer to close the sales transaction. Down payments usually range from 3% to 20% of the property value. You may be required to have Private Mortgage Insurance (PMI or MI) if your down payment is less than 20%.

Costs paid by the borrower (and in some cases the seller) in addition to the purchase price of a home. These may include the origination fee, discount points, appraisal, credit report, title insurance, attorney’s fees, survey, and prepaid items such as tax and insurance escrow payments. It’s common for these costs to total between 3% and 5% of your total mortgage. You will receive an estimate of these costs from your lender after you apply for a mortgage.

Because houses have such a high price tag, almost everyone borrows some, if not most, of the money they need to buy one. You’ll probably need a home loan, or mortgage, from a mortgage lender. You’ll need to pay back the mortgage by making regular payments (usually monthly) over a period of years, with interest.

The cost of maintaining your home. The amount will depend on the condition of your home, its exposure to the elements, the care with which you treat it, the number of people who live in it and the type of usage.

Taxes typically paid at least once a year to one or more governmental authorities. The amount is based on the market value of your property as determined by the county where the property is located.

Homeowner’s or hazard insurance protects you against financial losses on your property as a result of fire, wind, natural disasters or other hazards.

A home warranty is a type of insurance that some homeowners purchase to cover repairs to major systems such as plumbing, electrical, and heating systems, as well as installed appliances.

Remember, though there are many costs that go along with home ownership, there is also one important benefit: your home can increase in value over the years.

MILITARY GUIDEPOSTS

Blended Retirement (PDF)
The Veteran Entrepreneur (PDF)
Financial Readiness Guide (PDF)
Building Wealth (PDF)

MILITARY SAVES

KNOWLEDGE CHECK

1.

Brandon and Tracy both have demanding jobs and live in a beautiful $1,200 a month apartment. They’re thinking about buying their first home and have found two they like. Each costs $200,000, and the monthly mortgage payment will be $1,298. The house they like best needs a lot of repairs. To buy either, they’ll need most of their savings for the down payment. They will also need to cut back on a number of things in order to pay the new monthly expenses.

Which choice do you think is best?

 
 
 

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