Buying real estate can be a confusing experience if you are not armed with good information. That's where your Fredericksburg, Texas REALTOR can help. Take a look at these Frequently Asked Questions for First Time Homebuyers. If you don't find what you're looking for contact us and we'll have someone reach out as soon as possible to assist you.
There are several ways to gauge how much you can afford to spend on housing.
Before you start house-hunting, contact a mortgage lender to get pre-approved so you’ll know what price range you should look in. A mortgage lender will help you by letting you know what your financing options are. Types of loans, down payments, length of the loan, closing costs and more.
Getting pre-approved for a mortgage before you start the home search process gives you a stronger negotiating position when you find the right property and want to make an offer. Sellers want to know that the buyer can complete the home purchase and presenting them with a pre-approval letter lets them know that you are a solid buyer.
Aside from the down payment, the three largest expenditures involved with the purchase of a home are usually the monthly mortgage payment, home owner's insurance, and taxes. The amount of your mortgage payment depends upon your down payment, rate of interest, the term of the loan and the purchase price.
For example, a $200,000 mortgage with a 4% fixed-rate mortgage for 30 years will have a payment of approximately $955 per month. What about taxes? The tax rates will vary depending on the location, but generally, expect your annual property taxes to be about 2% of the purchase price. That means, for a home with a market value of $250,000 yearly taxes might run around $5,000.
Also, keep in mind additional expenses that go along with homeownership, such as utilities, garbage service, maintenance, and repairs.
One of the last real income tax deductions available to homeowners today is home loan interest and property taxes. This can amount to thousands of dollars in deductions each year.
The primary benefit of homeownership is appreciation-equity that builds every month. As the property increases in value and the debt service on the property is paid down. It is important to assess the market conditions where the property is located and the potential for value increases over the length of time you plan to own the property.
You found the right property, your offer has been accepted and now you have to navigate the mortgage process.
You should be pre-approved, which is a huge step in the process and has created a relationship with a lender.
What about the cost of the loan? The current interest rates will be provided by your lender. When looking at rates, the annual percentage rate (APR) will be disclosed. The APR is known as the true cost of the loan and includes interest, extra fees and costs amortized over the life of the loan. A lender may charge points (one percent of the loan amount) to make the loan.
Next, consider what loan options the lender offers. There are six or seven basic types of loans, which vary in length. Check how rates are calculated (fixed versus variable), and if the charges are fully amortized over the life of the loan, or if you’ll have to pay points upfront and/or balloon payments at the end.
The best loan terms for you depend on factors like changes you expect in your future income, how long you plan to own the property and predictions about what could happen to interest rates in the years ahead.
For example, if you only plan to keep the property for a year or two, starting with a lower Adjustable Rate Mortgage (ARM) might be a good option. If you have plans to keep the property for a longer-term and feel that inflation will rise rapidly, a fixed-rate mortgage might serve you better.
Credit problems can make it harder to qualify, but it’s still possible for buyers with less than stellar credit to get a home loan.
If you have had financial problems, whether it was a matter of late payments, delinquent taxes, or even a judgment filed against you, expect this to be a factor when applying for a mortgage.
Minor lapses may have little effect. However, buyers with serious credit issues may still qualify for a loan, but they may have to pay a higher interest rate or provide a larger down payment.
Here are three steps to take before applying for a home loan if you have had past credit problems.
First, request a Free Credit Report by clicking here. Review the report and work on eliminating any errors on your report that may not be yours.
Second, optimize your credit rating by citing prompt payment of rent, utilities, and other bills not reported on the credit reports.
Finally, you should be prepared to provide comprehensive explanations for any late payments to the loan officer. This is important because problems not reported by the buyer but discovered by the lender will reflect unfavorably.
Many lenders are understanding about one-time problems such as the loss of a job, a medical emergency, etc.
Buyers with patterns of delinquent payments might want to consider adding six months or a year of on-time payments and paying down high balances before pursuing a home purchase.
Working with a credit repair agency can be a huge help. Just make sure they are credible, most of them will not ask for money upfront to help you. They will only get paid once you see results.
Here are 5 common mistakes frequently made by first-time buyers and how to avoid them:
1. Looking outside your price range. To avoid disappointment, contact a real estate agent who will help you find a mortgage lender before you start looking for a home. The agent can also provide valuable insight about taxes and other expenses associated with homeownership such as utility bills, maintenance, repairs, etc. Nothing is worse than not knowing what your buying power is and falling in love with a home that is out of reach financially.
2. Buying on impulse. Don't fall into the trap of falling in love with the first couple of homes you look at. Make a list of wants and needs and decide up front what is negotiable and what is not. As you look at homes try to be objective and not emotional. Narrow the prospects to three or four, and then return for a closer look. Evaluate more than just the property. Look at the surrounding area and community amenities.
3. Not planning ahead. Think seriously about any personal changes you are planning in the next five to seven years. Thinking about having children, relocating with your job, moving an aging parent into your home? These are things to consider when making a home purchase.
4. Failure to focus on location. Don’t just focus on the house, consider the location. Is the neighborhood stable? Are surrounding properties well maintained? Is the area moderately quiet and close to your work, stores, and schools?
Learn about zoning and what new construction is planned on any vacant land in the immediate area.
Will the property be easy to market when you are ready to sell it?
5. Failure to understand the home buying process. Buying a property involves the legal transfer of ownership of real property. There are many aspects of the process that you need to be aware of to avoid any pitfalls that could cost you more money. Having the guidance of a professional REALTOR® makes the process seamless.
While each offers its own style and charm, the difference usually boils down to two things:
1. How the home fits into your lifestyle.
2. The condition of the property.
Homes that are 20 years old or newer have more energy-efficient features. With the rising utility costs these features are worth considering. Although there are some exceptions, homes with all-electric systems, generally have higher utility costs.
Homes that are more than 20 years old may be in need of repairs and updating. Inspections will reveal potential problems or code violations that may need to be addressed.
It is a good idea to ask the seller for copies of past utility bills for insight into monthly utility costs.
Although newer homes may be free of significant issues, there are other things to consider in making your decision. There may be architectural styles that cannot be found in new construction. You may be planning a renovation and want a home in an established neighborhood. Always be open to any age of home, but be aware of the limitations of both.
Definitely! Hiring a professional home inspector can save you a lot of grief and money. Many believe they only need an inspection on an older home. It is wise to have an independent inspection even if you are buying a brand new home.
Many buyers mistakenly believe that the only reason to have a home inspection is to make sure that the house they’re buying doesn’t have defects serious enough to warrant backing out of the transaction. But there’s more to it than that.
An inspection will usually reveal major problems that may even surprise the seller. The obvious ones are insufficient plumbing, antiquated and unsafe electrical systems, or structural and foundation problems. The discovery of such issues may cause the buyer to rethink their offer.
Although a competent inspector can uncover deal-killing defects, these problems are usually not common. Typically, the seller will already have disclosed major defects that they are aware of. More often, inspections reveal less serious issues that can be negotiated after the inspections.
For instance, there could be a minor electrical defect or inferior ventilation of a heating system or fireplace. If so, the buyer is usually in the position of having the purchase price reduced, a repair allowance or the defect corrected. More important, it also prevents the minor problem from developing into a major expense a year or two down the road.
Ask your REALTOR®, lender, family or friends. You can also search online and read reviews of their services. Click here to search for a real estate inspector on the Texas Association of Real Estate Inspectors website.
Remember you are paying the inspector for their time. You have them at your service for the time they are at the property performing the property inspections. Do not be afraid to ask questions, seek clarification or have them show you things that they note on their report.
There are fewer investments that have shown a better return than real estate. The key to investing wisely in real estate is understanding how the industry differs from others.
For example, when the defense industry dips, it usually shows a national decline and the stock prices of defense-oriented firms drop across the board. The same is true for most industries. They are impacted nationally.
That is not the case with real estate, which is actually an industry and investment driven by local conditions. One community may suddenly lose a manufacturing facility, and almost overnight the market is flooded with properties for sale. An example is southern California. Several years ago, when defense cutbacks began an excess of homes went up for sale, increasing the supply and lowering demand. There, it was a buyer’s market. At the same time, Bakersfield, a community less than 150 miles from Los Angeles continued to experience a high demand for real estate. With supply short, it was a seller’s market.
The key to successful real estate investing is to buy low and sell high. How do you know when the “low” has been reached? Or, for that matter, how can you judge when your property may be peaking in value? Market knowledge and trends hold the answers to these questions. Being aware of the national, state and local trends, interest rates, and economic indicators will help guide you in your investments.
Not all home warranties are created equal. Not every warranty provides the same protection and coverages. Warranties are designed to protect buyers from problems that emerge after closing. For example, if a major appliance breaks or the roof leaks, the ideal warranty kicks in and pays for the repairs.
Home warranties differ in the cost of the trade call fee (deductible), coverages, and exclusions.
Warranties are important when it comes to new construction, too. The reputation of the builder is an important consideration, but problems with new homes can be very expensive if they are not covered by a warranty.
There are two types of defects when it comes to new homes – Patent or Latent.
Patent defects are those problems that can be seen.
Latent defects appear later, and may not show up for months. Ground shifting, for example, can lead to foundation issues. This can become a costly and devastating expense for a new homeowner.
Some warranty companies will cover pre-existing conditions, so it is important to review the home warranty brochures that your real estate agent gives you to make the best choice.
Yes, it is! The intent of a pre-closing walkthrough is to give the buyer one last opportunity to verify that they are getting all that was promised in the sales contract. Buyers still have legal recourse if they discover, even after closing, that the condition of the property is not as it should be. It is better to avoid legal entanglements by doing a final walkthrough.
The best time to identify problems is before closing when the seller will be motivated to correct any deficiencies in order to close the transaction.
Typically, a buyer takes possession of a property 30-60 days after signing the sales agreement. And a lot can happen before the actual move-in. Appliances and fixtures can break, and walls, carpets, and doors can be damaged during the seller’s move-out. Sometimes the seller will simply have forgotten that he or she had agreed to leave the refrigerator or window coverings with the house. Whatever the reason, problems identified before closing have the best chance of being remedied.
If possible, schedule the walkthrough right before the closing, such as the day before. Your real estate agent should attend the walkthrough with you. Make sure that all items that should be in place (appliances, built-in furniture, window coverings, fixtures, etc.) are there.
Test appliances to make sure they work properly. Test all electrical switches and the garage door opener, if there is one. Run the garbage disposal and turn on every water faucet, checking under the sinks for leaks. Flush the toilets. Look at the floors, carpet, walls, and doors for recent damage.
If you discover that something is damaged or missing, make a note of it and inform your agent immediately.
A “contingency,” is an escape-clause in the purchase contract which allows a buyer to back out of the transaction if certain conditions aren’t met.
Other purchase contingencies may hinge on the buyer’s current living situation, or finances. For example, when it comes to contingencies many first-time buyers can be better prospects for a seller’s home than move-up buyers. Why? Because offers from homeowners usually are contingent upon the sale of their present home. Even if a move-up buyer has an offer for their home in-hand, their buyer’s offer may be contingent on another contingency (or sale) and so on down the line. If one transaction in the chain falls through, they all could fall through.
Cash offers can also be more attractive to sellers because cash offers don’t require lender approval which is never a certainty and could delay or prevent the closing.