10 Tips for First Time Home Buyers in Connecticut
Everyone wants to avoid making mistakes when making the first biggest purchase of their lives. Here are 10 helpful tips to help make the buying process (we hope with Northeast Property Group) end with a smart purchase.
#1: Just because it’s a buyer’s market doesn’t mean you should buy right now.
You’ve probably heard that current housing market conditions make it a great time to buy a home. It’s true — affordable homes, historically low interest rates, and the $8,000 homebuyer tax credit have encouraged many people to purchase their first places. But that doesn’t automatically mean it’s the right time for you to buy a home. You don’t want to be stuck with a house you’re not really ready for, so don’t let the market dictate your decision. Before buying a home, ask yourself some questions to determine if the timing is right: Do you have a good credit score? Is your job secure? Can you stay put for a few years, at least? If the answer to these questions is “no,” it might make more sense to wait until your life and finances are more stable. When that time comes, home ownership will be much more manageable and enjoyable.
#2: The cost of owning a home is more than just the purchase price.
As if a monthly mortgage payment isn’t enough, there are several monthly fees and expenses you’ll need to be prepared for when you become a homeowner: insurance, property taxes, utilities and maintenance, to name a few. When you add them all up, these costs can make owning a home significantly more expensive than renting. However, the costs of home ownership are bearable — people pay them every day. You may just need to tweak your home buying strategy to bring them in line with your budget. Rather than buying the biggest, most expensive house you can afford, considering scaling back the size of the home you shop for to make the whole package more affordable.
#3: Programs are out there to help first-time buyers.
A sizable down payment is never a bad investment: It gives you instant equity in your home, a lower monthly payment and a way out of paying dreaded private mortgage insurance. But if you can’t scrape together enough cash to put 20 percent down, you don’t have to give up on homeownership. There are many federal, state and local programs geared toward helping first-time homebuyers with down payments, interest rates and loan terms. The Federal Housing Administration offers many valuable resources, the most popular of which is the HUD 203(b) loan. FHA lenders provide 97 percent of financing, and most closing costs can be included in the loan.
There’s also the HUD 203(k) loan, which offers a solution for a typical fixer-upper dilemma: Traditional lenders won’t pay for the property until the repairs are complete, but buyers can’t start repairs until they own the house. This FHA loan appraises the handyman special to estimate the cost after renovations, then gives you the money for the property and repairs.
#4: Foreclosures and short sales present great deals, but proceed with caution.
There’s been a lot of buzz around the foreclosure and short sale markets lately, and for good reason: Many homebuyers have gotten great deals on these types of properties. However, buying a foreclosure or short sale can come with a number of pitfalls, making them a risky choice for first-time buyers. For starters, foreclosures are often sold “as-is,” meaning the bank will not pay for any repairs. Since maintenance is not always a top priority for homeowners facing foreclosure, these properties may need a significant amount of work, adding hidden costs to the purchase price.
The transactions — particularly when it comes to short sales — are also lengthier and more complicated than a typical home purchase. Plus, average homebuyers have to compete with seasoned real estate investors, who often make attractive all-cash offers. But if you stumble upon a great deal, a buyer’s agent or real estate attorney who specializes in foreclosures can walk you through the process.
#5: Getting pre-approved for a loan gives you more buying power.
Before you start perusing listings and touring houses, be sure you have a pre-approval letter in hand. A pre-approval letter, which proves that a lender has conditionally offered you a specific mortgage, is important for several reasons: First, it establishes your maximum purchase price, so you don’t shop for homes above your price range. Second, it shows sellers you’re serious about buying and allows you to make an offer as soon as you see a home you’re interested in. Finally, if you get pre-approved by several lenders (which you should), you can compare interest rates and terms to find the best deal.
#6: Good school districts boost property value.
Even if you don’t have kids, buying a home near sought-after schools can help with resale. That old real estate adage — location, location, location — really is true. The most important aspect of a home’s value is the neighborhood it’s in, so shop for homes in the best areas you can afford. If you’re priced out of the neighborhoods you want to be in, look for the area’s fixer-uppers. These homes will need work, but they’ll have built-in property value.
#7: You may be able to access your tax credit upfront.
If you’re thinking about buying a home (or even if you’re not), you’ve probably heard plenty about the federal housing tax credit — a tax allowance of up to $8,000 for first-time homebuyers and $6,500 for repeat buyers. However, you may not know that it’s possible to access your tax credit upfront, rather than waiting to claim it on your tax return. HUD is now allowing “monetization” of the tax credit, meaning buyers using FHA-insured mortgages can apply their anticipated tax credit toward their home purchase immediately, rather than waiting until they file their income taxes to receive a refund. The credit can be used for certain down payment and closing cost expenses.
Prospective homebuyers who believe they qualify for the credit are also allowed to reduce their income tax withholding, therefore increasing their take-home pay. This money can then be applied to a down payment on a home.
#8: Not all real estate agents represent buyers.
You may think all real estate agents are looking out for your best interests as a homebuyer, but this isn’t always the case. There are two types of agents: listing agents, who represent sellers and help them get the best price and terms for their properties, and buyer’s agents, who represent buyers and protect their interests during the negotiating and closing processes. An agent can be both a listing agent and a buyer’s agent, and sometimes one agent will represent both the buyer and the seller in the same transaction. This scenario — called “dual agency” — creates a difficult situation where the agent is forced to balance the interests of both the buyer and the seller.
If it all seems quite complicated, that’s because it is. Real estate representation is a tricky subject with complex laws that vary from state to state. For your first time buying a home, you may feel more at ease working with an exclusive buyer agent. This type of agent never takes listings, therefore eliminating any possible conflicts of interests with sellers.
#9: Doing your homework with your agent can help you make a competitive offer.
Before your make an offer on a home, you need to crunch the numbers to figure out the property’s market value. While precisely pinpointing this number is tough, it’s not a total guessing game either. Have your agent do a “comparative market analysis.” He or she will compare the home you want to buy to recently sold homes in the area with the same square footage, construction, age and other characteristics. The CMA will show you what buyers were willing to pay for similar homes in the neighborhood, giving you a good starting point for shaping your own offer.
#10: It’s important to have a back-out plan.
When you fall in love with a home, you may be prepared to do anything to get it. You may even be tempted to make an offer without getting a home inspection or an appraisal. Don’t do it! For such a momentous purchase, you want to know exactly what you’re getting into and have an escape route in place if things don’t go as planned. That’s where contingencies come in. If the home has an irresolvable flaw, it doesn’t appraise for the purchase price, or your lender refuses to fund your loan, having contingencies on your contract gives you the right to cancel the transaction.
Our sales agents at Northeast Property Group are familiar with the process of buying and selling real estate throughout the state of Connecticut, with a special focus in the New London County area. Call us or leave a comment if you are interested in learning more about what homes are available and how we can help guide you through the buying process.