First-time Home Buyer’s Guide – Everything You Need to Know
Buying a home can be an extremely stressful yet exciting time for a first timer, especially when buying in a competitive market like Sacramento. There’s a laundry list of steps, tasks and requirements that need to be completed throughout the process and it can be nerve-wracking making such an expensive decision. But there are a few advantages that will encourage new clients to become a first-time home buyer in Sacramento. In order to shed light on the process, here is a comprehensive guide for everything you need to know about the home buying process, from what to consider before purchasing to tips that will make things easier after you’ve purchased your first home!
What is a First-time Home Buyer?
It may seem obvious, right? It’s simply a person who has not purchased a home before, and while that is the most widely accepted definition it can be much broader than that. There are a number of grant and loan programs in place for buyers who cannot come up with a substantial down payment however, to qualify for a number of these programs buyers typically must not have owned a home for the past three years. This means that you don’t have to be completely new to the process. Many Americans can take advantage of first-time home buyer benefits even if they have been through the process previously.
First-time Home Buyer Benefits
Buying a home is a major milestone for the average American and as a first-time home buyer there are a number of benefits. It is a great way to build wealth while putting down a relatively small amount. It can be a great way to leverage your investment and build equity while paying down your loan. You gain access to state programs, tax breaks and federally backed loans if you do not have the minimum down payment which is typically 20% of the purchase price for a conventional loan. As mentioned above, you may be entitled to some of these benefits even if you aren’t a first-time home buyer. The conditions that need to be met according to the U.S. Department of Housing and Urban Development (HUD) to qualify as a first-time home buyer are:
- A person who has not owned a primary residence for the past three years. If you have owned a home, but your spouse has not, then you may qualify as a first-time home buyer together.
- A single parent or displaced homemaker who has owned a home with a former spouse.
- A person who has owned a primary residence that is not affixed to a permanent foundation according to regulations.
- A person who has owned a property that was not up to code and cannot be brought into compliance for less than the cost of building a new structure.
What to Consider Before Buying?
Now that you have a clear understanding of the benefits of buying a home, it’s time to consider your finances as well as your long-term goals. Maybe you want to buy a home as an investment or a family home, either way it’s important to consider how your homeownership goals will fit into your lifestyle.
Before you start looking for your dream home, it’s important to do a complete audit of your finances. This will tell you whether or not buying a home is the right option for you.
Check your savings accounts and make sure that you have 3 to 6 months of living expenses saved up. Buying a home means that you will incur a number of upfront costs and they can begin to add up quickly. It’s essential to ensure that you have enough saved up for your down payment, closing costs and emergency fund as your lender will require it. It may be wise to keep your savings in an easily accessible place that provides a rate of return that keeps up with inflation. Looking into a certificate of deposit for long-term savings or a high-yield savings account for short-term savings is highly recommended.
Review your budget, make sure to know exactly how much money you are spending on a monthly basis and exactly where it’s going. This will help you determine how much you can afford in terms of a mortgage payment. Take account of every expense from utilities to car payments to kid’s activities.
Check your credit. In order to qualify for a home loan with a good interest rate you will need a good credit history along with a debt to income ratio below 43%. Lenders prefer to limit a borrower’s housing expenses to about 30 of their monthly gross income and these numbers may begin to grow stricter in the wake of current events.
How Much Mortgage Can You Afford?
After your finances are in order, you’ll need to determine how much home you can really afford. A lender in Sacramento can give you local rates and determine how much you qualify for. You may think you can afford a $400,000 home; however, a lender may only qualify you for $250,000, it’s important to know this number. When deciding how large of a loan to take, don’t forget to account for the total cost, not just the monthly payment. Property taxes and homeowner’s insurance can add significant cost to the overall price of the loan. Before placing any offers, it’s recommended to get preapproved by your lender as this will show sellers you are serious.
Who Will Help You Buy?
A real estate agent in the Sacramento area will help guide you through the rest of the home buying process. Once you have chosen your home the real estate agent will help you negotiate, get a loan and complete paperwork. A good real-estate agent in Sacramento will help you avoid any pitfalls and protect you throughout the home buying process.