So you’ve decided to buy a new home. However, unlocking the door to your first home isn’t as simple as finding the right location. Once you’ve found that location, you need to compare prices, financing options and get through those challenges beyond simply finding the home with the finest curb appeal. When buying a home, some steps you’ll go through are:
- Getting a mortgage approval
- Finding the right agent to work with
- Finding a home which fits your budget
Most buyers think if they can afford the mortgage they are ready to buy, but this isn’t the case. New York Insurance Agent David W. Clausen, president of Coastal Insurance states: “Many purchasers know where their mortgage payment will fall but forget to take into account closing costs, title insurance, increase in property taxes and a host of other incidentals.”
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These are five areas buyers don’t account for, which can cost more than they bargained for.
Homeowner’s insurance, taxes, HOA fees, electric and water bills, and even maintenance dues. Most first time buyers overlook these costs when shopping. Clausen adds, “It is also important to know property taxes and insurance costs typically trend up on a yearly basis.” He further goes on to state if you are possibly going to switch jobs in a couple of years, it might not be the best time to buy. It is best to pick a home only if you can ideally plan on living there at least 5 to 7 years.
Buying doesn’t start when you are looking for a home. It starts with mortgage applications, unless you are one of the lucky few who can afford a cash purchase. Clausen notes how some buyers are afraid of preapproval. As a broker/owner at Coastal Insurance on Long Island, NY he discusses how buyers are afraid of not being approved; so they simply pick a figure out of the sky in hopes of finding a home within that range.
First things first
Clausen says this isn’t how the process should go. Although it is fun to first look at homes, this is the backwards way of doing things. You should first get preapproved then shop; not only does this show you how much you can afford, but also prevents being dejected if you fall in love with a home you can’t afford.
As a new buyer, you need a reputable agent, legal team, loan officer, and broker. Anderson states if you are going in as a first time buyer, it isn’t wise to do it on your own. He further states how first time buyers shouldn’t deal with the listing agent directly, but also notes that every situation has its exception.
He compares this scenario to a divorce. If you are going through a divorce, you wouldn’t go to your ex-spouses attorney, would you? You need a buyer’s agent when buying a home. A listing agent is only going to show you their properties, while a buyer’s agent considers your personal needs.
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First you should gather references. You should have friends or relatives lined up to provide a reference. If you don’t have any, ask your broker as well as your agent to provide some, so you go in with a positive outlook when applying for your mortgage.
Clausen adds it is very hard as a first time buyer, since they don’t know who they are dealing with. Clausen further notes how it is important to find an agent who will “truly provide independent, quality advice that benefits the homeowner and not the agent that is looking to make a quick buck.” Clausen also states that this might mean hiring a lawyer when going through the purchase process, simply to ensure the entire process is impartial when buying your first home.
Clausen also notes how many first time buyers spend all or a major portion of their savings for a down payment; this is a detrimental mistake he points out. Many will pull all of their money together to put down that 20% to avoid mortgage insurance. However this is the wrong direction to go and can leave you short on cash for a rainy day.
Depleting your savings is very risky
With a conventional mortgage if you put down 20% you don’t have to pay for insurance on the mortgage. Although this can result in substantial monthly savings, Clausen says it isn’t worth “pushing the preverbial envelope” and not having funds set aside for a potential problem down the road. He says: “I’d pay for the mortgage insurance any day over not having enough money for a family emergency or loss of employment,” and goes on to note that everyone, especially the first time buyer, needs to have those funds set aside.
Prequalification has taken place, you have the perfect home lined up, you’ve signed a contract and close in 30 days. But, don’t get too excited just yet.
Why you should keep the wallet shut for the time being
Prior to closing a financial report including credit check is run, to ensure the financial situation hasn’t changed. If you have new loans on your credit report, this can jeopardize the ability to move forward with the purchase process.
Clausen notes how some buyers sign the contract then go buy a new boat or pricey furniture for the new home. He discusses a situation where a buyer drove to his office and showed him the new boat; Clausen went on to advise him to drive it right back to the dealership that day!
The dealership was kind enough to agree to afford that buyer a few more days, until the final credit check and financial history had been run on the home that buyer was ready to purchase. If this was not the case, it could have killed the deal. So before you get ready to start spending and financing big purchases, make sure you take a step back, and wait until those final checks are run, to avoid the risk of losing everything, only a few days before moving into your dream home.
Questions? Call us at 631-782-3175
For more information and helpful video’s explaining everything from, how to save money on Homeowners Insurance to an easy explanation of Flood Insurance, be sure to visit the Coastal Insurance Video Library.
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