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First-Time Homebuyers – What You Need to Know

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Spring is finally in the air, and that’s a sure sign that first-time homebuyers are out and about, looking for their perfect new home.

If you’re one of them, you’re probably having a hard time containing your excitement. It’s a natural impulse to want to hit the ground running today, if not yesterday! But don’t let emotions take over your hunt for a new house.

Before you even head out the door to start your search, do your homework first. There are a multitude of things to consider. Here are some pointers to help prepare you for your quest.

Figure out what you can afford – Knowing what you can realistically handle as a monthly mortgage payment is crucial. The last thing you want to do is get in over your head. Sit down and figure out in detail your current monthly income and expenses. And don’t overlook all the expenses that will come with home ownership. In addition to principal, interest, taxes and insurance, you’ll have utility costs such as heating, electric, cable, water and sewer. Contact utility companies that will service your house and ask for cost estimates and whether budget plans are available. Your overall budget should also include a “rainy day fund” for unexpected expenses, such as an appliance replacement or roof repairs.

By determining your debt-to-income ratio and factoring in a down payment, you’ll get a good idea of what you can afford. Generally speaking, no more than 28 percent of your gross monthly income should be devoted to housing costs. This is referred to as the front-end ratio. The portion of income that covers all monthly debt obligations is called the back-end ratio. Lenders typically prefer this to be 36 percent or less.

Also keep in mind that you’ll need money for closing costs. They typically amount to 1-1/2 to 2 percent of the purchase price.

And don’t forget to check your credit score. It goes without saying that the higher the score, the better your chances of securing a mortgage loan. To get an idea of where your credit stands, go to AnnualCreditReport.com to get your free credit report from each of the three credit bureaus.

Look for classes tailored to first-time homebuyers – Many Realtors and financial institutions offer free classes for first-time buyers so they know what to expect in advance of making a purchase. These classes are usually presented by lenders, attorneys and Realtors who can offer their specific insights and advice.

Pick the right real estate agent – Not all Realtors are created equal. Knowing which one is right for you takes some research. Ask agents for a list of previous clients and their contact information, then get in touch with at least some of those individuals to see what their experiences were with their lender. Ask friends, family members and neighbors who they would recommend. Check with licensing boards to determine if agents you’re interested in are properly licensed and whether they’ve had any disciplinary actions or complaints. See how long agents have been in business and what properties they have listed.

And choose the right lender – Finding the right lender is just as important as tracking down the right Realtor. Again, ask friends and family for recommendations and also check with your financial institution to see what it can offer. Look for lenders who are local, since they’re familiar with the region’s real estate market and the distinct features that come with it. Local lenders will know what lending programs are available and which ones will be a good fit for you. And they should be willing to take the time to explain in detail what’s involved with taking out a mortgage loan.

If you can arrange to have your financing in place before you go looking for a home, you’ll be better positioned to make an offer should you come across a property you really want.

Create a list of your must-haves/essentials/extra perks – It’s highly unlikely you’re going to find the perfect home that has everything you want. But by creating a list, you’ll get a handle on things you absolutely need and want, as well as things that would be nice to have. Take the checklist with you on every house visit you make so you can keep track of which homes have what you’re looking for.

Go online – A wealth of information on buying a home is also available on the U.S. Department of Housing and Urban Development’s website. Check it out here.

About Joy

Joy Aguayo, BankFive Mortgage Originator (NMLS#20890), is a native Rhode Islander and currently resides in Warwick, RI. As a life- long resident of the State of RI and a seasoned mortgage professional, Joy can guide you toward the right mortgage product for your needs. You can contact Joy at 774-888-6229 or at joy.aguayo@bankfive.com.

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Jim McGaw

A lifelong Portsmouth resident, Jim graduated from Portsmouth High School in 1982 and earned a journalism degree from the University of Rhode Island in 1986. He's worked two different stints at East Bay Newspapers, for a total of 18 years with the company so far. When not running all over town bringing you the news from Portsmouth, Jim listens to lots and lots and lots of music, watches obscure silent films from the '20s and usually has three books going at once. He also loves to cook crazy New Orleans dishes for his wife of 25 years, Michelle, and their two sons, Jake and Max.