First Time Home Buyers - What You Need To Know - Third Blog

Real Estate Agent with Az Licensed Realtor at US Preferred Realty in Mesa

First Time Home Buyers need to start the pre-approval process.  You will need two years of tax statements, several pay stubs, and the two to six months' of bank statements.  You will also be asked to submit documentation of assets, such as stocks or bonds, as well as your debts (credit card balances, car loans, other financial obligations). When you begin the actual loan application, all of this information will be required again, and sometimes they will ask for it several times during the process.  Make copies of everything you submit. 

Just because you qualify for a certain loan amount doesn't mean you should take on that level of debt.  You need to consider your comfort level taking into account all your expenses and debts to determine what monthly payment you can afford.  One rule of thumb guideline is do not take on more than 2.5 times your annual household income on a home.

You need a minimum of 3.5 percent of the purchase price, but 20 percent is considered ideal.  If you can afford to pay 20 percent, you should get a better loan rate and you won't have to pay mortgage insurance.  Mortgage insurance offsets the lender's losses if you're unable to repay the loan and the lender can't recover its costs from the sale of the property.  Mortgage insurance is tax-deductible under limited conditions.   If you do not have 20 percent to put down, you might consider looking at new builds.  The builder often offers their own financing and require less out of pocket.

If your offer is accepted, you will need to put down earnest money, usually about 1 percent of your offer.  This money is your way of saying that you are a serious buyer.  That money will be deducted from your final closing costs.  Closing costs can add thousands to the total price, typically, 2 to 5 percent of the purchase price.  These days, many buyers ask the seller to pay part or all of the closing costs - this is negotiable.  You will need $300 to $500 for a home inspection, not required, but highly recommended.  Some other costs to consider are over lapping rent/mortgage payments, cost of turning on and transferring utilities, and moving expenses.    

Your monthly mortgage payment typically includes principle, interest, taxes, homeowners insurance, mortgage insurance (if you put less than 20 percent down).  Sometimes an additional monthly fee, usually paid to a property management company, is the Home Owners Association (HOA).


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