With interest rates on home loans still at historical lows, the many advantages of owning a home can be especially appealing right now. Home ownership continues to be one of the best ways to help secure your financial future and build your net worth in this country. In the short term, it can also provide important tax benefits and shield you from rent increases which are becoming all too frequent in the Bay Area!
Anticipating buying your first home in the next year or so? Here is our checklist of the top five tips for first-time homebuyers:
Who you work with can make all the difference: When you’re making one of the biggest investments of your financial life, working with knowledgeable professionals with a reputation for honesty and integrity is critical. Also, choosing a real estate agent or firm with deep expertise in the specific neighborhood or community that you prefer is one of the best ways to gain insights on pricing in the area and to help ensure that you maintain a favorable position in the bidding process. After all, an agent that is well familiar with the area where you are looking should have a good idea of what offer a seller might accept, and might reject. Be equally selective when using a mortgage broker, and if at all possible, get a referral for both the agent and broker from someone you trust.
Don’t base a home’s affordability on your mortgage and down payment alone: In determining whether the home you have your eye on is within your financial reach, bear in mind that there are a number of expenses associated with owning that home that go beyond your loan and the cash that you’re initially required to put down. You’ll need to budget for property taxes, homeowners insurance, and closing costs in addition to items such as home maintenance, utilities, and moving expenses. For an excellent tool you can use to calculate costs and evaluate various options on the path to home ownership, visit NeighborWorks America at http://keystomyhome.org/.
Get your finances in order before you go house hunting: In today’s competitive Bay Area housing market, arranging financing before shopping for a home is essential—unless you happen to be paying entirely in cash! It’s a good idea to review your credit report at least six months before you begin seriously looking for a home to buy. You’ll want to correct any mistakes and do what you can to improve your score if it’s below 700 (which qualifies you for the best interest rates). In most cases, you’ll need to obtain a preapproval on financing from a lender in order to make an offer on a home. And in order to obtain preapproval, you must also provide your lender all pertinent documents for verification of your income.
You may have more flexibility than you think on the down payment: A common misperception is that prospective homebuyers must provide a cash down payment constituting 20 percent of a home’s purchase price. Indeed, larger cash payments are attractive to sellers and a down payment of 10-20 percent often wins out over a bid from those who are more cash-strapped. However, if you can’t shell out 20 percent for a down payment, there are other options available to you.
In truth, you need only put down 5 percent for a conventional loan, depending on the loan amount*. Additionally, there are nonprofit and government agency programs available to assist with closing costs and down payments, including the Federal Housing Administration (FHA) loan that requires only 3.5 percent down on a 30-year fixed-rate mortgage. If you receive an FHA loan; however, you will need to purchase Private Mortgage Insurance (PMI), which may range between .5 to 1 percent of your mortgage loan on an annual basis. In most cases, those who take out conventional loans with less than 20 percent down are also required to pay PMI.
Make sure your first home will suit your needs for several years to come: Because it often takes several years to recoup the expenses involved in buying and selling a home, it’s usually best to purchase a home with the intention that you will remain living in it for several years. During the first few years of owning your first home, you also aren’t likely to build up significant equity in it because the biggest portion of your mortgage payments will be going toward interest. Before you commit to a home, be sure you can envision yourself and your family settled comfortably in the neighborhood for at least three years.
Excited about the possibility of setting down roots and taking an important step toward financial security by moving out of that rental and into a home that belongs to you? SF Police Credit Union can help with a wide variety of home loan options to fit your budget and lifestyle. We provide both fixed-rate and adjustable-rate mortgages with no hidden fees and no pre-payment penalties. For more details and to apply, visit us online.