We're thinking about buying a home in the next year or two. How can we best prepare for a home purchase?

By
Real Estate Agent with Homebuyer Representation, Inc. DRE# 5467433
https://activerain.com/droplet/9Cn

First Time Home BuyersI have a lot of people asking me how to best prepare for a home purchase in the next year or two.

Here are a few tips. I'm more than happy to answer any additional questions anyone considering a home purchase in the next 2 years may have.

How much should you save for a down payment?

If you CAN, try and save 20% of the purchase price as a down payment. Here's why: Mortgage Insurance. Mortgage insurance is getting expensive and can equal hundreds of dollars a month on your mortgage payment. None of which goes toward the principle balance of your loan. If you can save a 20% down payment, you should be able to avoid mortgage insurance altogether. This will significantly lower your monthly payment and/or allow you to qualify for more home. Just remember, if you bump up the cost of the home, you will need to bump up your down payment accordingly. Your payment goes down because you don't have to pay mortgage insurance, but also because you are financing less.

To some people, 20% would be out of reach in the next year or two, but they would still prefer to buy rather than rent. It can be done. If you CANNOT save 20% of the purchase price as a down payment, shoot for 5-10%. The minimum amount required for mainstream financing is 3.5%, but you will also have some additional expenses beyond the down payment. These expenses are called "closing costs" and can include such things as loan fees, appraisal, pre-paid property taxes and homeowner's insurance, title insurance, etc. If your down payment is less than 20%, you will likely have mortgage insurance, either up-front, monthly, or both.

My recommendation for a down payment: 5-10% minimum, try for 20% or more if possible.

What should you do before actually starting to house hunt?

  1. Save, save, save that down payment.
  2. Keep paying any bills and/or credit on time. This includes car loans, student loans, credit cards, even cell phone bills. With the changes going on in the financing industry, keeping your credit score as high as possible will allow you to qualify for the best interest rate available and will make it possible for you to qualify for financing that those with poorer credit cannot qualify for.
  3. Determine whether buying or renting makes the most sense. Start to get a feel for what home values are. What can you buy for $x per month? What can you rent for $x per month? You should be able to get a ballpark idea of home values by browsing the local MLS site online. If you know you will not be in the area for at least a few years, continuing to rent and to save for a future purchase may make the most sense. If you are ready to set roots and make the community your home for a while (5-10 years+), buying a home can have it's advantages over renting.

A few more things when you start to look: 

Don't contact listing agents. They are not the Buyer's "trusted advisor". They are salespeople. Their job is to sell you the homes they have listed. Some might dispute that with you privately, but I'd like to hear them say as much in front of the Seller who hired them to sell their home. Selling those homes is why the Sellers have hired them.

Get your own agent when buying a homeSince Sellers usually have professional representation, I believe a Buyer should also, to level the playing field and possibly even to give them an advantage in negotiations. The highest form of Buyer Representation is an Exclusive Buyers Agent (EBA) whose company never lists homes for sale. They (and their broker) never represent sellers and will not ask you to agree to a limited form of representation such as limited or dual agency, where the agent cannot work for your best interest, because they also represent the Seller. 

An Exclusive Buyer's Agent can give you information on market trends, home values, help you with loan shopping, etc. Their job isn't to "sell" you any particular home, but to make sure you are protected and aware of all your options as you try and buy the best home you can at a price and terms most favorable to you, the Buyer, NOT the Seller. Before you do anything else, try and find a reputable Exclusive Buyer's Agent who you can trust to work in your best interest and guide you through the homebuying process. See my company's relocation website at www.getyourownagent.com for more details or to find a local EBA.

When do we start getting serious?

The time to start getting serious is when you are about 90 days from wanting to be in your new home. This gives you time to go physically through a fair number of available properties, negotiate an agreeable contract on a home and allow for the escrow process to take place where you finish all your financing arrangements, do your home inspections and other professional evaluations of the property, have an appraisal done on the home, etc. etc. You will want to have inspections and evaluations done as early as possible in the process in case you need to renegotiate the agreement based on home conditions or in case you need to move on and find another property.

There is nothing wrong with doing some preliminary research prior to the 90 day mark. But when you start to get close, that is when you want to engage professionals to help you with your searching, financing and other preparations.

If you have any additional questions on this topic, please don't hesitate to call, text or email me.

Best of luck as you prepare for homeownership!

  • Do you have excellent credit?
  • Are you looking to purchase a home within 90 days?
  • Are you making a substantial down payment (5% of the purchase price or more) or paying cash for your next home?

If so, don't buy a home without an agent on YOUR side of the transaction!

Homebuyer Representation, Inc. - Exclusive Buyer Agents

Make sure you hire an Exclusive Buyer's Agent!

Call us at (801) 969-8989 or contact us via the link on this page.

©2011 Homebuyer Representation, Inc. - "The Real Estate Agents on the Buyer's Side" TM 

Salt Lake City, UT - Exclusive Buyer Agents (EBA)

All Rights Reserved

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Re-Blogged 5 times:

Re-Blogged By Re-Blogged At
  1. Rhonda Abbott 05/11/2011 04:56 AM
  2. Beverly Femia 05/11/2011 10:01 AM
  3. Gene Riemenschneider 05/12/2011 08:04 AM
  4. Gabe Sanders 05/16/2011 09:18 AM
  5. Charles Stallions Real Estate Services 01/19/2013 03:10 AM
Topic:
Home Buying
Groups:
Exclusive Buyer Agents
Exclusive Buyer's Agents (EBAs)
Buying A Home
Tags:
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eba
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Rainer
75,000
Derk Simonson
ReMax Coastal Properties La Jolla and Pacific Beach, San Diego - La Jolla, CA
Ex-builder, long time Realtor

Very well put, Benjamin, simple (KISS) and yet thorough.  This will be understood by first time Buyers.

May 11, 2011 03:33 AM #44
Rainmaker
299,380
Jim Paulson
Progressive Realty (Boise Idaho) www.Progressive-Realty.info - Boise, ID
Owner,Broker

Good advice except I sell a lot of homes by knowing the specialty niche programs that cater to first time homebuyers with lower down payments and sometimes reduced interest rates for low to moderate income buyers.    By the time another agent waits for them to save a traditional down payment, I will have already closed a home with them here in Boise, Idaho.

May 11, 2011 03:41 AM #45
Rainmaker
449,421
Scott Seaton Jr. Bourbonnais Kankakee IL Home Inspector
SLS Home Inspections-Bradley Bourbonnais Kankakee Manteno - Bourbonnais, IL
The Home Inspector With a Heart!

Don't forget about a home inspection. I know it's well after the start of the process, but they should be sure and plan for the expense. 

May 11, 2011 03:42 AM #46
Rainer
277,202
Stu Dye
Mortgage Network, Inc. NMLS #2668 - Portland, ME
Senior Loan Officer

I agree w/ Justin's 6-month (minimum) time-frame...  You can always accelerate that if the situation improves.

May 11, 2011 04:05 AM #47
Rainmaker
252,068
Benjamin Clark
Homebuyer Representation, Inc. - Salt Lake City, UT
Buyer's Agent - Certified Negotiation Expert

Jim - This information is for someone who doesn't plan to buy for a year or two. Saving for a down payment is a wise thing to do. If they choose to put a smaller down-payment and use their savings for home repairs, updating or furniture, it's their choice. But if they don't save, they won't have those options.

My experience with Buyers is that those who have saved a significant down payment are more careful about what they buy. They also tend to allow me to negotiate harder on their behalf. They understand they are buying with hard-earned and saved money, not just on credit.

Since they have funds, they can buy some homes that others cannot. And I've had Buyers win in multiple offer situations even if they are not the highest price, because they are the strongest Buyer. While a Buyer can buy with little or no money down, saving as much as possible before a purchase is just good advice.

May 11, 2011 04:11 AM #48
Rainmaker
252,068
Benjamin Clark
Homebuyer Representation, Inc. - Salt Lake City, UT
Buyer's Agent - Certified Negotiation Expert

Scott - Right on. Every Buyer should plan to pay for a professional home inspection, and, depending on the home, additional inspections and evaluations. (Structural Engineer, Radon Testing, Meth Testing, etc. etc.) Depending on the house, these inspections could cost just a few hundred dollars, or they could cost $1,000 or more (combined).

Another reason to save as much as possible before a home purchase.

And don't forget that after a purchase a homeowner will have ongoing maintenance expenses. Issues their landlord may have taken care of before: Furnace filters, grounds maintenance, utility bills, things that just break down.

And they may need to buy a lawnmower, hoses, blinds, a sprinkler system, a fence... etc.

I'm sticking by my advice to save as much as possible as early as possible.

May 11, 2011 04:18 AM #49
Rainer
158,135
Rhonda Abbott
Howard Hanna - Wadsworth, OH
Wadsworth & Greater Akron, OH

Super, fantastic, amazing post - sums up what EVERY prospective buyer NEEDS to know when they're almost ready to make a home purchase.  Homeownership can be a blessing or a curse - your plan of action helps get buyers started on a path that will make owning a home a true joy!

May 11, 2011 05:02 AM #50
Rainer
67,802
Nate Herd
Loan Officer-Amerifirst Financial (0013635) Arizona & Utah - Phoenix, AZ

hi Benjamin,

Great post with lots of great ideas, one other suggestion is to have them speak with a lender. I always sit down with the clients and help them understand what the loan process requires and have them start working on good habits so when they are ready to purchase a home there wont be any hurdles or surprises.

May 11, 2011 05:40 AM #51
Rainer
378,888
Ken Cash
CB Select Real Estate at Lake Tahoe - 775.691.3855 - - Incline Village, NV
Lake Tahoe Lake Front Homes, Luxury Homes, Condomi

Well written with great ideas.  Your a true counselor for home buyers..

May 11, 2011 05:51 AM #52
Rainer
56,883
Joey Fenwick
Self-Employed, 1st Time & move up buyers,FHA, VA conventiona - Phoenix, AZ
Fenwick Team FHA, VA & Jumbo Loans, Phoenix, Scott

Good post Benjamin,

I might add one thing about the saving part:

If they can save 5% and they have access to a relative who can gift them the other 15% or 5% from three different relatives, they can still get into a home with the full 20% down. Being good on their credit is THE MOST IMPORTANT overall point as conventional requires at least 660 mid credit score for both (if a couple) and the pricing is tiered evdry 20 points of improvement. The loan size will also affect the pricing.

Recommend that they let family know that they are saving for a down payment and have put themselves on a stringent budget and that for every occasion (birthdays, Christmas, etc) they would prefer a money gift rather than any other gift to help them accomplish their goal. They might be amazed what will happen when they put that out there for all in the family and family (especially the parents) will be happy tat their youngstersare growing up and putting value on money and the best place to spend it.

Jeanne

May 11, 2011 07:27 AM #53
Rainer
320,479
Ray Waisler
Finance of America - Atlanta, GA
NMLS #6621 - Specializing in Jumbo FHA & VA

Benjamin, good advice but I have to point out a couple of things:

1. "The minimum amount required for mainstream financing is 3.5%"is actually not entirely accurate since HopePath loans will allow for 3% down and VA and USDA loans will allow for 0% down. Conventional loans with PMI will also allow 3% down although the monthly PMI can be very high.

2. HomePath loans to 97% LTV and VA loans have no monthly PMI either.

3. I would also recommend that at the 90 day mark when they are getting serious it would be prudent for them to get pre-approved.

Just my two cents.

May 11, 2011 08:00 AM #54
Rainmaker
1,537,488
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

In this age of "instant gratification" many who think they can't save for a down payment really could - if they'd deny themselves some of that instant gratification in favor of their long term benefit.

Does anyone need a $5 cup of coffee every morning? Does anyone need a new wardrobe each spring and fall. Do they even need a new swimsuit each summer?

I could go on and on. But the fact is, small "sacrifices" can add hundreds of dollars per month to a savings fund.

May 11, 2011 08:17 AM #55
Rainer
117,860
Beverly Femia
BlueCoast Realty Corporation - Hampstead, NC
Broker Realtor Stager - Greater Wilmington, NC Are

I've been doing this for 10 years and never heard a better explanation for why calling the listing agent makes so little sense.  Thank you for a well written post with great information. 

By the way, Amen to Marte!!! 

May 11, 2011 09:57 AM #56
Rainer
7,151
Albert Bui
Avenue One Capital Inc. - Irvine, CA

These are all great for the larger majority of the buyer pool. The main problem would be for those who are self employed, have significant assets, entity structures, trusts, and perhaps multiple rental properties.

The more complex the situation would require more time to adequately structure the financing to become a smooth transaction. There have been one too many time where I receive a borrower who has failed to be approved by other lenders and have come with all the bad advice of others yet I am left to repair the deal, hot potato 101.

I would definitely say 3-6 months for the average buyer and up to 1 or more for more complex borrowers.

 

 

May 11, 2011 06:30 PM #57
Rainmaker
67,119
Brenda, Ron, Lee Cunningham & Tara Keator
West USA Realty - Phoenix, AZ
Realtors, Homes for Sale - Phoenix Metro

Great post!  Buyers would do well to read and learn!

May 11, 2011 07:08 PM #58
Rainer
69,054
Robert Courtney
Lihue, HI
Century 21 All Islands, RA, CDPE, MCRE, CIAS

Benjamin - Your post can save a lot of heart ache for people thinking about buying a home.  Hope it is well read and makes your phone ring!

May 11, 2011 07:19 PM #59
Rainmaker
508,351
Sylvie Stuart
Realty One Group Mountain Desert 928-600-2765 - Flagstaff, AZ
Home Buying, Home Selling and Investment - Flagsta

Great post! You laid it out perfectly!

May 12, 2011 07:55 AM #60
Rainmaker
1,431,210
Gene Riemenschneider
Home Point Real Estate - Brentwood, CA
Turning Houses into Homes

This is a pretty good post.  However, I think there is a lot to be said for 3.5% down on an FHA loan.  In this day and age having that other 16.5% in the bank can be a nice thing. 

May 12, 2011 08:00 AM #61
Anonymous
Lindsey Tanner

Hey that's us! I was surprised to see our faces because it seems like we worked with you so long ago. But we are happy to represent you - we were just telling some friends the other night what a fantastic broker you were.

May 15, 2011 12:19 PM #62
Rainer
48,735
Dave and Debbi Campbell
NPDodge Real Estate - Bellevue, NE

Great article! 

May 17, 2011 12:41 AM #63
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Rainmaker
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Benjamin Clark

Buyer's Agent - Certified Negotiation Expert
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