I had no idea what I was getting myself into when I bought my first house. There were so many things the mortgage lender and closing company assumed I knew that I didn’t. I was 23, and used an FHA (Federal Housing Authority) loan. It took about a month to close, but I finally sealed the deal and held the keys to my first home. Even so, there are still a few things I wish I’d have known beforehand.
Getting a mortgage isn’t for the faint of heart. Prepare to have your credit score, job history, bank statements and financial position scrutinized.
Closing costs. These are the fees associated with closing a real estate deal. This includes fees for signing the paperwork, pulling your credit report, setting up the mortgage and recording the transaction. The cost can vary depending on how much the mortgage is for, but is usually between 3 to 6 percent of the purchase price.
Ask about making a good-faith deposit. A good-faith deposit is an amount of money given to the seller from the buyer (or 3rd party) when making an offer on a house to show the offer is serious (usually around $1,000).
You don’t have to use the lender’s title company to close. Sometimes the seller will even pay the closing costs if you ask nicely. But, if the money is coming out of your pocket, estimate higher than you’re expecting. I had to run a check to the title company three times due to unexpected costs.
Everything is negotiable. The asking price, the closing costs, the percentage rates, the down payment and the good faith deposit. Everything.
Don’t use the same real estate agent the seller uses. Find your own from a different company, or hire a buyer’s agent. Trust me on this one.
Buy down your points. If you qualify for a 30-year fixed mortgage at 4.5 percent, you can usually “buy down points,” or pay more up front and get a lower interest rate (in addition to your down payment). Most financial institutions have a limit on how much you can pay down, but one point = 1 percent. This lowers your monthly payment and will save you thousands over the life of the loan.
Make the largest down payment you can afford. Just because the loan terms allow you buy a house with 3.5 percent down, doesn’t mean you should throw down the minimum. The larger the down payment, the less you’re paying in interest down the road. Also, try to pay down your mortgage as quickly as possible. A $100,000 house actually costs about $330,000 over the life of the loan. You should rarely pay more than the asking price, but never pay more than the appraised price.
Consider a 15-year mortgage instead of 30 years. This cuts the life of the loan in half, and the payments aren’t that much higher. Also, make sure you get a fixed rate so your interest rate doesn’t change.
The Bottom Line
Don’t get emotionally attached. There are hundreds of houses in your area, any one of them could become “home.”
Buying a home isn’t for everyone. Maintenance on older houses can be expensive, and there’s no one to call and fix the AC if it goes out. You can ask about a home warranty, which some lenders offer for free for a year or two.
Finally, before you buy, do your homework. Buying a house can be a great long-term investment, but it can become a nightmare if you’re not prepared.