First Time Home Buyer FAQs

If you are considering buying a home, whether it is your first or tenth, it is always a good idea to make yourself familiar with the process. The best way to do this is by speaking with a real estate professional and a lender. In this post we will cover some of the questions I am often asked as a Realtor®!

1. Where do I start? The best place to start is by assessing your needs and wants. If you are buying the home with another person, be sure to discuss your individual priorities and determine what is most important as a whole. Next, assess your finances. Determine how much money you have to put down (we will talk costs next) and how much you feel comfortable spending each month. Your next step is to talk to a real estate professional and lender! This is extremely important, as they know the ins and outs of the entire home buying process and can help educate and prepare you best. A real estate agent will talk with you about what you’re looking for and get you set up on a search so you never miss a single listing! A lender will help find the best loan option for you and get you pre-approved for a mortgage. 

2. How much do I need to have saved? Do I need 20% down?  It is important to keep in mind that your down payment is only one portion of the expenses. Inspections and closing costs will account for the other portion. A standard home inspection, depending on your area, the inspector, and size of the home will usually run you anywhere from $200-$500. This will be paid at the time of the inspection. Additional inspection services may be purchased, including but not limited to, well and septic inspection, water tests, mold tests, and radon tests, which all vary in price. If you plan to have additional inspections done, budget for a couple hundred dollars extra. Closing costs include, but are not limited to, title company fees, mortgage fees, appraisal, recording fees, tax prorations, and homeowner’s insurance premiums. A good rule of thumb is to budget 5% of the purchase price for these expenses. As far as down payments, you do NOT need 20%! There are many different loan options, including 0% down loans. I talk more on these different loan types in an upcoming blog. For now, the most common loan type is a conventional loan, in which you can put as little as 3-5% down! A lender will help you assess which loan option is best for you and your needs! 

3. How do I know my budget?  Of course a lender would be the absolute best resource for determining your budget. However, if you are not quite ready to begin the process, you can get a rough estimate on your own. First, figure out your monthly income. If you are on a salary, this should be quite easy. If you are hourly or self employed, take the last 2 years of income and divide by 24. Multiply that number by 0.38 or 38%. Next, calculate your monthly debts (credit card payments and any other loan payments). This will be your maximum monthly payment. Remember to keep in mind that interest, property tax, private mortgage insurance (if you are putting less than 20% down), and homeowners insurance need to be subtracted. Estimate how much each of those costs would be, based off of current interest rates and property taxes in the area you are searching (for just a quick estimate, use 50% of your monthly payment). When you have subtracted those costs, multiply the number by 360. This will give you a rough estimate on your maximum purchase price. For the most accurate number, it is highly recommended to talk to a lender and get a formal pre-approval!! 

4. What is the difference between an inspection and an appraisal?  Inspections and appraisals are often mistaken as the same thing. An inspection, however, is a service a buyer can choose to purchase to assess the condition of the home. It is a good idea to write offers contingent on an inspection so you are aware of any issues prior to closing on the home. This is a service that the buyer pays for and the report belongs to them. An appraisal is an assessment of value, done by an outside party on behalf of the lender. The appraisal is used to determine if the home is worth the purchase price, and in turn, worth lending money for. Both the inspection and the appraisal are the buyer’s expense, however the inspection is paid for at the time of service and the appraisal is typically included in the closing costs.

5. How long does it take to buy a house? How early should I start looking?  It is never too early to start looking online at houses on the market. It can be very beneficial to keep an eye on listings you may be interested in to form realistic expectations of what you can afford. As far as when to start going to physically see homes, 3-6 months before you want to move is pretty common! It can take some time to find the perfect home or to get an offer accepted. Once you have an accepted offer, it usually takes anywhere from 4-6 weeks to close if you are financing the home. If you are paying cash, you may be able to close within a few days and up to 2-3 weeks. 

6. How do I know if it’s a good time to buy?  The right time to buy is different for everybody. The best way to decide if it is a good time for you to buy is to determine if you can afford to. Interest rates change and you can always refinance. The market is always changing and whether it is a buyers market or a sellers market, there are pros and cons. If you want to buy but aren’t quite sure if it is a good time, reach out to a real estate agent or lender who can help you run numbers to see if it is plausible for you. Renting is essentially paying 100% interest and if you are able to spend the same amount each month (in some cases, even less) and build equity at the same time, you really can’t go wrong! 

It is important to keep in mind anytime you are buying a house that you don’t want to completely deplete your savings or become “house poor”. Buy a home within your means and keep a savings cushion for unexpected repairs and maintenance. Buying a home is an incredible way to build generational wealth when done the correct way. If you have any questions about buying a home, are ready to start the home buying process, or need recommendations for lenders or real estate professionals outside of Michigan, contact me! You can get in contact through the phone number or email on the home page or go to the “Contact Me” page under the “About Me” tab! Happy Buying!:)