Steps to Take This Holiday Season to Ensure Your House and Family are ProtectedThe holiday season is coming up, which means shopping for Christmas gifts, planning parties with friends, and going on
First Time Home Buyer Advice And Questions For Phoenix Home Buyers
Dated: April 15 2015
First Time Home Buyer Advice For Greater Phoenix and Scottsdale Home Buyers
If you are a First Time Home Buyer in the Phoenix or Scottsdale surrounding areas of Metro Phoenix I have some sound advice for you before you make the big purchase. Even if it is your second or third experience and are unsure what has changed since your last purchase, this should help. Cold feet or even being straight up afraid of such a large purchase are very common feelings when starting your home search. The good news is you (should) have a well experienced agent on your side to help you through the process... and there are plenty of resources you can use to make sure you are prepared for such a large purchase as a Millennial or First Time Homebuyer! I have put together a few major pointers below for those home buyers looking in Greater Phoenix or Scottsdale preparing to understand the Home Buying Process.
Other Than My Mortgage, What Costs Will I Have As A Homeowner?
Keep in mind that once you own a home, you will have more expenses than just your mortgage payment. Typically a mortgage payment includes a principal and interest payment, as well as a payment into an escrow account to cover your Home Owner's Insurance, Mortgage Insurance (if this applies to your loan), and property taxes. The mortgage company will typically make these additional payments for you out of your escrow account, so when you go to get an estimated monthly payment be sure to ask your lender for the FULL estimated amount. If you are going to live in a community with an associated Home Owner's Association cost be sure to include this too! You are typically looking to keep these total payments under 30% of your monthly income. Don't forget utility costs!
What is Private Mortgage Insurance?
Private Mortgage Insurance is an additional payment, both for Conventional or FHA loans, when the Home Buyer uses a loan with less than 20% down payment. FHA has a minimum of 3.5% down and is an easier loan to obtain than a Conventional Loan (allows for lending to a borrower with a lower credit score). Conventional Loans are NOW OFFERING ONLY 3% DOWN as a minimum. Yes your credit score will have to be a little better, but your PMI costs will be lower than with an FHA loan. You can additionally wrap these costs into your loan for a higher interest rate, or simply prepay the amount at closing so you do not have the additional monthly payment of around $75-$200 (depends on the loan amount, type of loan, etc.). Either way, this is certainly something to discuss with your lender before or during opening escrow on how you want to handle PMI payments. If you have the full 20% down for your home purchase at closing then no worries, no PMI for you! If you do need to pay the additional monthly amount, don't fret. With a conventional loan you can also attempt to have that PMI monthly payment removed completely after two years of living in the residence as a primary home, making all of your payments on time, if your home appraises (you pay for this at your leisure) at a value above 78% of your loan amount. It will take some work with your Mortgage company and may take some time, but it is definitely possible to do!
Can I Add A Co-Borrower To My Loan?
Yes! At least, it's possible. If you do not have the funds needed to close or the credit score to qualify this is certainly a good possibility for you. You are also allowed to receive "gifts" from family members to help you with your purchase. Many Millennial and First Time Home Buyers are using this as a way to purchase a home in Greater Phoenix or Scottsdale because of student loan debts or low credit scores. They simply add their parent(s) as a co-borrower or apply for a "gifting" of funds, and BOOM! All of a sudden they are fully capable of Buying A Home! Of course, this is not always the case. Be sure to contact your local lender and discuss this with them. It will depend on your credit score, their credit score, any loans your co-borrower may already have, and many more options. Your best bet is to speak with a lender to discuss these options.
Prepare And Organize Documentation Before Buying!
One of the biggest complaints I get from my clients is all of the documentation required by the lender when Buying A Home. But hey, think of it this way... When mortgage companies were giving out home loans based on what the Buyer told them, it got everyone into a lot of trouble. They need this documentation to help protect everyone! It is to ensure the lender that you really can afford to buy, with certainty, so that you don't end up foreclosing on your home. It can be time consuming gathering all of your tax documentation, pay stubs, bank account info, etc.... But you are protecting yourself here. The lender will take everything into account and let you know if this is a wise decision for you and how much you really can afford on your home purchase. Do yourself a favor and get things organized ahead of time, or at least know where to get these items. It will help you once you open escrow on your purchase and are required to supply all of the documentation. The #1 reason a home purchase gets delayed is due to the Buyer taking their time getting documentation to the lender... And if you wait too long, or ask to extend closing, you run the risk of losing the home to another Buyer. Make sure you are prepared to provide all of the important documentation, you'll thank yourself later when the closing process is much smoother and less hectic.
Do Not Make Any Large Purchases Just Before Or During Your Buying Process!
This is a common mistake among first time homebuyers. Do not go out and buy a car, or open a bunch of credit cards to finance your purchases for furniture/home furnishings! Even if you do it just a few days before closing, most lenders pull one more final credit check a few days before closing. If they see that you made a large purchase through a loan or a credit card it will most likely screw up your credit score and possibly the entire purchase of the home. Don't put yourself in this position, just wait until after closing. Also do not make any large debits or credits to your bank accounts... You want to make your accounts look very "normal" with what the previous past months looked like or it will raise a red flag for the lender and potentially block you from buying the home of your dreams!
Start An Emergency Fund For Your Home!
Once you are officially a Phoenix Homeowner, get that emergency fund started. Owning a home comes with a sense of great pride... Don't be the neighbor everyone talks about with the peeling paint, trashed front lawn, or lack of pride in ownership. More importantly, you don't want your AC to stop working in the middle of a Phoenix summer and not have the money to fix it. Things happen when you are a homeowner. You're not a renter anymore, so no more calling the landlord and telling them to fix your leaky sink! Be sure to have some additional money on the side just in case the roof starts leaking or your fridge stops working.
Why Buy When I Can Rent?
So after reading the paragraph above, if you are responsible for all the surprises that can suddenly happen to your home as a homeowner, it sounds much easier to simply rent and not have to worry... Right? WRONG! Think of it this way... Let's say your landlord lives in the sewers beneath your condo... Perfect! Just flush your rent down the toilet and he will get it. Basically that's what you are doing. Paying money every single month to someone else, who is in turn taking that money and paying themselves or even worse paying for THEIR MORTGAGE on the condo you are renting. Every month you pay them, they pay the mortgage, and their principal loan amount goes down. Then they can go to sell in a few years for more than they bought it for and cash out all the remaining money left over between the amount they owe and what they sold it for... Except they didn't pay anything during that time, you did! Yes homeownership is a great feeling. Yes you can do whatever you want to your house, it's yours. Those are perks, sure... but the real advantage to Buying A Home instead of Renting A Home is that YOU are paying off the mortgage every month. When you do go to sell you reap the rewards. It's like putting $1,000 into a saving account every month, and then several years later, you get to cash out on it. You keep paying the mortgage payment instead of your rent, YOUR principal amount of the loan keeps going down, and when you go to sell in the future the difference between what you owe and what you receive from the sale is all yours. Or better yet, rent it out when you buy your next house... Now YOU are the landlord paying your mortgage (from my analogy - continuing to stash away money in your "savings account") but with someone else's money!
So what are you waiting for?! After reading through this you are probably more prepared to buy than a vast majority of homebuyers out there. Still have questions on First Time Home Buying? Renting Vs Owning a Home? The Escrow Process or Where to Start Your Home Search? Contact us! We are here to help, even if your search is preliminary.
You are well on your way to being a Greater Phoenix or Scottsdale Home Owner! Congrats! Start your Greater Phoenix or Scottsdale Home Search by clicking the link below:
With a degree in Integrated Systems Engineering from The Ohio State University, Eric Tont has been able to apply an analytical mindset towards his real estate career. His ability to review neighborho....
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