FIRST TIME BUYERS
Are you tired of rentals, roommates, and landlords? It’s time for you to take advantage of low
mortgage rates and became a first-time homebuyer!! Below are 5 easy steps to consider before
buying a home:
1. Study your local Real Estate market.
Do a quick search of properties in your city & analyze many factors of the homes that impact the
listing price; such as neighborhood, size of the house, upgrades, and recent comparable homes sold
in the last 90 days. Apps such as Realtor, Zillow, & Trulia may be useful to buyers starting the search
2. How much will my mortgage be?
As do many first-time homebuyers, you may already know how much you can afford to spend before
the mortgage lender tells you how much you qualify for. By using a mortgage calculator, such as
Zillow’s or Bankrate’s, you can get a more precise idea of what your monthly mortgage payments
would be if you bought today. These calculators often include other costs that come with owning a
home; such as property taxes, home insurance, mortgage insurance, and in some cases - home
3. How much does it cost to buy a house? (Down Payment & Closing
The days of zero down are over. If you are a veteran, you can get a VA loan with no money down,
but everyone else will need some money to put down. An FHA loan requires 3.5 percent down, and
a conventional mortgage is going to need at least a 5 percent down payment. While many buyers
are aware of the down payment requirement, others overlook the closings costs. These closing costs
include origination fees charged by the lender, title and settlement fees through Escrow, taxes and
prepaid items like homeowner’s insurance or mortgage insurance. According to the Federal
Reserve's Consumer Guide, closings costs are between 1.75 – 2 percent of the loan balance. For
examples, a $350,000 home with would require a $12,250 (FHA) down payment & an estimated
$6,000 in closing costs.
4. I have the money but not great credit – can I still buy?
Lending institutions have implemented tighter guidelines and therefore, credit is very important for
the first-time home buyer. An FHA loan allows a lower credit score, sometimes as low as 580 while
other conventional loans will require a mid 600’s score. You will get a better rate with a higher score
also. Blemished credit or the inability to make a substantial down payment can put your
homeownership plans on hold. It’s important to look at your creditworthiness early in the homebuying
process & know where you stand.
5. Where do I get started?
If the numbers make sense for you the next step would be to find a reputable Realtor & lender in
your area. Lenders will ask for pay stubs, bank account statements, W-2s, tax returns for the past
two years; it may seem like a lot, but in this age of tight credit, don't be surprised if your lender wants
a lot of documentation
Often times a buyer qualifies for more than expected – but why put yourself in a tough
position to make the monthly payment. Aside from a lender giving you a qualification Fannie
Mae recommends that buyers spend no more than 28 percent of their income on housing.
Push past 30 percent and you risk becoming house-poor.
"DTI" refers to "debt-to-income" ratio. This is the amount of debt, including your proposed
new mortgage payment, in relation to your income. This is usually going to need to be under
40 percent, with some exceptions. If you have a lot of debt, you will probably need to pay some
things down before you apply for a mortgage.
Debt ratios - The FHA sets debt ratio limits for all borrowers to ensure they do not overstretch
their financial commitments. Your debt ratio shows what percentage of your income you
spend on fixed expenses, such as car loans, credit cards and mortgages. The FHA's guidelines
set the maximum debt ratio to qualify for a loan at 41 percent. That is, if you make $1,000,
your fixed expenses cannot exceed $410 (including your FHA mortgage) to qualify.
1. Plan first
Often times, the lack of a plan is the biggest mistakes new investors make. Buying a
property because it appears to be a good deal, then figuring out what to do with it can
back fire -that’s working backward. Pick your investment model first, and then go find
property to match that. Don't find the strategy after you find the home.
2. Numbers Never Lie
The number is the number, and you don't go above that. Whether you’re flipping or
holding properties, don’t underestimate the unexpected expenses it will cost you.
Overpaying $10,000 for a house can severely cut your profit margin & leave you
collecting pennies rather than dollars. When searching for properties make one offer, then
another, and other! There are several investors competing with you; so, when your plan is
set & your numbers make sense, which house you get is not an issue -- as long as the
numbers work out in your favor.
3. Build your Dream Team
To succeed as an investor, you must have a team of professionals that you trust to assist
you with your projects. Developing relationships with a trusted real estate agent, an
appraiser, a home inspector, a lender, can prove to save you from lots of headaches &
unexpected barriers. You can't build a business as an investor if you're spending all your
time fixing leaky faucets or scanning the home magazines.
4. Plan for the worst, hope for the best
Once the property has been rehabbed & ready to sell or bring in tenants, prepare to wait
before the bucks come rolling in. It's not uncommon for a property to sit on the market
before it's leased or sold. In some cases, the owner may have to pay the mortgage,
insurance, taxes, or association dues, and all these fees could reduce the bottom line
numbers. Pricing right or showing before it lists can attract many interested
buyers/tenants and cut down on waiting time.
5. Anticipate the next move!
The first step to achieving success for investors is buying a property at the right price.
The true worth of the asset isn't the income stream - price appreciation is what builds
wealth. As a common sports reference says, “go to where the ball is going, not where it
has been”. Be sure to target the potential & rather than buying an investment in a “hot
market” with high prices, identify emerging markets by watching for drivers of growth
such as employment, manufacturing & new construction. A successful investor will
analyze all scenarios such as future rent growth, capitalization rates, interest rates and
future sales pricing.