12 Things Every First Time Homebuyer Should Know

Open House

I meet a lot of first-time homebuyers at my brokerage. More often than not, they’re really not sure about everything that’s involved in the process. I’ve put together this description of the entire process to help you get started!

Money

Affordability

Get an idea of what you can afford to spend each month. It is recommended that a buyer spend no more than 28% of their income on housing costs, though most lenders will allow you to borrow up to 36% of your income. Your monthly payment isn’t made up of just your mortgage payment either – Property taxes will be the second largest part of your monthly payment aside from your mortgage. If you pay less than 20% of the price of the house for your downpayment, you will also have to pay mortgage insurance. If you’re in a newer home, you may have HOA or Mello Roos fees as well. Home owners are required to purchase insurance, though that is usually very affordable. And lastly, water and sewerage fees.

Credit

Get your free annual credit reports from the 3 credit bureaus (Equifax, Experian and Transunion) and comb through them for errors and unresolved issues. The earlier you start looking at your credit, the better.

Documents

Before you start house-hunting, you should get pre-approved for a loan, and before you get pre-approved, you’ll need to get all your docs in a row! Lenders are much stricter now than they used to be, so you’ll want to make sure you have all the information that can help them approve you. Collect pay stubs, bank account statements, W-2s, tax returns for the past two years, statements from current loans and credit lines, and the names and addresses of your landlords for the past two years.

Lender

Applying to multiple lenders in the same month helps increase your chances of getting a loan approved at the best rate possible without dinging your credit too much. A “conventional loan” will require a 10-20% downpayment on the property you purchase. If you can’t or don’t want to put down that much, there are still plenty of options for you.

Government loans

Because lenders are much stricter these days, it’s possible you may have trouble getting approved for a conventional loan. If this is you, or if you can’t afford at least a 10% downpayment, consider getting an FHA loan instead. The Federal Housing Administration has a program that insures the mortgages of many first-time home buyers and only requires a 3.5% downpayment! If you are serving or have served in the military, a VA loan may be best for you. The downpayment required for a VA loan is 0% and VA loans do not have mortgage insurance.

Closing costs

Closing costs are often forgotten about until the last second, but they can be a significant expense and you should plan for them from the outset. Find out how much you’re likely to pay in closing costs, which include origination fees by the lender, title and settlement fees, taxes and prepaid items like homeowners insurance or HOA fees.

Other unexpected costs

while buying a home is a great way to build wealth, especially in a market like San Diego, remember the costs associated with it. For those of you who have rented for a long time, you may have come to take several things for granted. Now, when unexpected things happen, you’ll have to pay for them yourself! Appliances may break down, you may need to repair your roof, or a plumbing or electrical fix may be necessary. You never know when one of these things might happen in your first year or two of owning your new home, so make sure you leave some room in your budget for them.

Realtor

Okay, so you’re preapproved and you have a pretty good idea of your budget moving forward. Congratulations! You’re ready to start the house hunt! Keeping in mind that a house is probably the largest purchase you’ll ever make, you’ll want to find a realtor you can trust. The majority of people with a real estate license are very part-time, doing maybe 1-3 deals a year for their friends and family. Given that the market and the laws are constantly changing, make sure you choose a realtor who you’re sure can guide you through the process and do your paperwork so that you won’t be vulnerable to lawsuits.

Location

If you are new to San Diego, a good realtor will be able to help you pick an area. Regardless of whether you know San Diego well however, location is still the most important thing for you to consider when looking at homes. Consider:

Is a good school district an important factor?

Do you want to be close to work or shopping or the beach, etc?

Is being centrally located important?

Think about the places you visit on a day-to-day basis and make sure you’re not choosing a place with an inconvenient location. Also, when you do look at specific houses, it’s a great idea to go for a drive around the neighborhood and see what it has to offer.

Market awareness

Because a house is an investment as well as a place to relax and raise a family, you should be aware of the current climate. Buying a little earlier or later than what you’re thinking could make a big difference down the road. San Diego’s market is strong right now, and will likely continue that way. This is a great thing – you should be building tens of thousands in equity each year!

Patience

Sometimes, you may need to look at a lot of houses to find your dream home. Try not to get frustrated. A good agent will never pressure you to buy something just for a sake of buying something. With patience, you’ll find the house of your dreams!


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Scott Cheng - Real Estate Broker

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