Are you ready to jump on the Homeownership Train? Are you ready to own the roof over your head?
Mortgage and homeownership have always been important parts of my career and passion. Before joining banking, I started my career in the financial industry as a mortgage broker in 2003. In just 2 years, I started a mortgage and real estate investment company with my partner in the heart of Orange County, California. In the next few years with the real estate market going through the roof, I was able to further expand my real estate portfolio and help many others getting on the train to homeownership. As many successes in life, set-backs came equally fast as the housing market collapsed in 2007. I closed my company and transitioned into the world of banking to continue helping others. Till this day, I am still helping others to jump on the train of homeownership and realizing their personal American Dream by utilizing a simple “9 Things to Know for First Time Home Buyer” plan:
1. Know your credit
2. Know your budget
3. Know where you want to buy
4. Know what you want in a home
5. Know your lender
6. Know your team
7. Know about what you are getting yourself into
8. Know what types of mortgages are best for you
9. Know your plan for the home after purchase
See it wasn’t so intimidating right? Now let us dive into each step to get you started
Know Your Credit
Your credit rating is directly related to the rates of your mortgage. Knowing your credit is the first step of this long journey of achieving homeownership. Your credit ratings are being provided by the three credit bureaus: Equifax, Experian, and Transunion. It is your right to obtain a free copy of your report without the FICO score annually through www.annualcreditreport.com. Check your report to see if there is anything that isn’t accurate as it happens way more often than you think. Remember, when you visit the credit bureaus’ sites, you will be prompted to purchase a report with the FICO score, which I recommend to stay away from. Most banks that you bank with will provide you an assumed credit score based on the soft inquiries that they pulled regularly. These scores are not the real FICO score but they do provide you insights to your credit rating before meeting lenders for hard inquiries. If you do find your report containing errors, make fixing them a priority before proceeding as those errors may greatly affect your interest rates. At last, no matter what, try to avoid getting a NEW CREDIT during the process!
Know Your Budget
Like going shopping, without knowing how much money you have in your wallet, it’s hard to get into the cashier line with a full cart of clothes and hope for the best. Knowing your budget is the key to the successful home purchasing experience. How much can you afford every month along with other obligations? How much do you pay for periodic costs that are associated with a property? How much money did you save for down payment? Being able to create a budget plan is crucial for home purchasing. Along with credit rating, Debt to Income Ratio and down payment both play big parts for lenders to consider your application. A general rule of thumb, a lender will prefer your Debt to Income Ratio to be under 40%. It means that all your monthly fixed expenses plus your new monthly mortgage payment have to be less than 40% of your monthly income. For example, if you bring home $5,000 a month, then your monthly outcome which includes your new mortgage payment can’t exceed $2,000. Sometimes a lender may consider an exception on Debt to Income Ratio only if the borrower makes a significant amount of income.
Another big part of knowing your budget is knowing how much down payment can you afford. Down payment less than 20% of the property value may cause lenders to add Private Mortgage Insurances on top of your loan which can drastically increase your monthly payment. A common mistake from the first-time homebuyer is the overestimate of prepared down payment. Buying a property has some considerable closing costs, if you don’t budget correctly, you may find yourself dipping into that down payment savings and got stuck with mortgage insurances or higher rates.
Once you have all your budget plan set straight and ready to start the process. Take all your supporting documents to your choice of a lender for a review and request a Pre-Approval letter to officially kick off the home search process.
Know where you want to buy
Location, location, location! The oldest saying in real estate investment and still hold true till now. Deciding where you want to buy is an important part of the purchasing process. Real estate purchasing is a long-term game. You don’t want to jump on a property without doing a little homework prior. Ask yourself, “Is the location convenient to your job? Is the neighborhood safe? Do the kids have to change the school district? Is the neighborhood worn down or up and coming?” These are important questions that you shall think about before purchasing or deciding on making an offer. Unlike buying at Target, you can’t return your home within 30 days back to the seller. Make a list and do a little homework through various home listing sites can go a very long way. It is Make sure the location you are buying also fits your mid-term and long-term goals. Remember, a studio condo in the heart of Brooklyn may be good when you are single but certainly post challenges with two babies in the future, right?
Know What You Want in a Home
Knowing what you want in a home some sounds easy. It is easier to say than done. It is always recommended to compose a list of what you want in a home. How many bathrooms are enough? Which direction shall the house be facing? Some items on your most wanted list may be easy fixes but some may be much more complicated or impossible to address down the line. Talk with your friends and families for advice that can avoid potential spending for renovations down the line. Review your list constantly and be ready to comprise!
Know Your Lender
Picking the right lender is very important. I recommend everyone to explore different options and understand the benefit between different banks before committing with a hard credit inquiry. Many banks layout their mortgage programs and specials on their websites, a little homework goes a long way! An important tip from me, always consult with your primary bank, you will be surprised that your current relationship may give you unexpected perks. Most major banks offer significant rate or closing costs discount to their customers. I will also advise asking your lender about the First Time Home Owner programs as many institutions offer free grants if the applicant qualifies. Choosing a lender that is right for you can often eliminate unnecessary stresses and the same significant amount of time during the process.
Know Your Team
Picking your team for real estate purchases is like picking the right teammates in your local basketball pick up games. If you pick carelessly, you will end up losing. Your team shall consists: an experienced realtor that you can trust, a dependable lawyer to protect your rights, a knowledgeable title officer to make sure you have a clean title of the property, a skilled home inspector to ensure you are not getting into a disaster zone, and an escrow officer that will help to mediate the way. Each member of your team plays a crucial part in your real estate transaction, a little misstep in choosing, you may end up in a much worse situation.
A good realtor can find the right location that you are interested in. They find houses that fit most if not all of your most-wanted list. They can keep the search within a realistic budget and provide non-public information about the neighborhood through personal connections. I strongly advise avoiding using sellers’ realtors as you don’t know which side they are on.
A dependable lawyer can protect your rights during the home purchase. They are responsible for taking care of the legal matters when it comes down to a thousand pages of paperwork involving real estate transactions. When it comes to the trustworthiness of lawyers, ask for referrals from your professional connections. Another method to find a dependable lawyer is by utilizing prepay legal sites like www.rocketlawyer.com or www.legalzoom.com to ensure you have the right legal team in your corner.
A skilled home inspector can save you tons of money and maybe your life! Ask your friends and families for recommendations. Your realtor and professional networks are also great sources of finding your very own Drew and Scott from HGTV. Recently, many buyers turn to www.homeadvisor.com or Angie’s List for contractors that have been reviewed by others. Remember, you are paying for the home inspection, so anything you find is not just money-saving, it can also be life-saving!
Usually, for the title and escrow officer, your lawyer and realtor have candidates in mind that they have work well in the past. Strong team chemistry can significantly shorten your time frame during the first-time home buying process!
So take charge, ask around, and interview as many people as possible. Don’t settle until you are certain that your team is going to help you through one of the biggest investments in life!
Know What You Are Getting Yourself Into
Before deciding on what type of properties you are going to purchase, know who will be on the title of the property and relationship is equally important. If you are single and planning to purchase your property, that is straightforward and easy. However, many buyers come in pairs: Husband and Wife, Partners, Business Partners, or Family Members. Being able to pre-plan the title and responsibilities of obligation is very important. For example, if you are buying a property with your business partner, what happened if your partner had an accident and now you are forced to be business with his successor, is that what you want? How can you protect yourself? If you are buying a property with your siblings, what happened if they got a job offer oversea and wants to liquidate their parts of the home? Do you have plans for that? Are you ready to be forced to sell despite you love the place? I strongly recommend understanding what you are getting yourself into before jump on impulses. From experiences, relationships may be deeply impacted or even destroyed if no prior communication was established.
Once you decided on who will be on the title and fully aware of all the outcomes that come with purchasing a property, it is time to decide on what types of property to buy. There are Single Family, Multi-Family, Condos, Co-Ops, short-sell, foreclosure, and more. Knowing the types of property that you are planning to buy will help you in the process.
Knowing that condos normally come with HOA or condo fees. These fees are significant as it typically covers: landscape, maintenance, security, management and more. These fees normally greatly impact your monthly housing payment and reduce the amount that you could borrow.
Now Co-Ops, it is different scenarios. You own the property along with other owners of the building. Just to place an offer, you will need to be approved by the co-op board. Yes, you will need to submit your application and get interviewed by your future neighbors so they can decide if you are a good fit! The timeline from your first interview to approval may take months, so be ready if you are in a hurry to buy.
Short-sale and foreclosures are different as you are dealing with the banks and lenders instead of the seller. Short-sale happens when the seller is trying to sell the property less than the mortgage owed. The short-sale process can take months before a bank even decides to reply to your offer. As for foreclosures, the properties are generally abandoned or the owners were evicted for falling behind on the payments. In most cases, the properties are badly damaged by the time that they hit the market. The foreclosing banks typically favor cash offers and list the properties in the “As Is” condition that requires a lot of repairs. As a first time home buyer, bring a whole cash offer or finding a foreclosed property that fits the lenders’ guidelines is hard.
Know what types of mortgage is best for you
Once you have decided to make an offer on a property, slow down and review all your options to make sure you are getting the best mortgage FOR YOURSELF! If you do not plan to stay in a property for more than 5 years, why bother getting 30 years fixed at a higher rate? If you do decide to stay in a home for a long time, then you shall consider the possibilities of buying down your rates as it can save you thousands in the long run. My best advice is to sit down with a mortgage expert or loan consultant from your bank to brainstorm the best mortgage that is tailor for you!
Know your plan after purchase
Believe or not, homeownership is a continuous work in progress instead of one- time matter. As you just made one of the biggest investments of your life, what are the next steps? Do you have a plan to address all the findings in your home inspection? When do you start decorating the property in your home? Do you have a budget plan built for all the things that you will like to do? As you are a new homeowner now, I strongly suggest you take the time to revisit your revised budget plan. If you want more information about creating an effective budget plan, please visit Episode 1 and 2 of my podcast, “Life Plus Up by Kevin Yang”, on Spotify, Google Podcast, Anchor, and more.
After fully aware of 9 Things to Know Before Jumping on the “Homeownership Train”, I hope you are one step closer to achieve your very own dream of being a homeowner! Now, let the search begin!