Home Financing for the First-Time Buyer
Buying your first house can be very exciting, but financing it can be a daunting experience. In both cases, knowledge is power, and if you do your research and shop carefully, you will have a successful home-buying experience.
Before you visit a sales office, model home or open house, take advantage of sources that can help you get prepared, and take steps to ensure you’re in the best possible financial situation:
• Figure out what you can pay on a monthly basis. Write down all your monthly expenses including loan payments, utilities, insurance, credit cards and don’t forget food, clothing and entertainment expenditures. When determining the payment you can afford, remember that in addition to the monthly principal and interest, you will also be paying into escrow for property taxes, hazard insurance and possibly mortgage insurance, or a homeowners’ or condominium association assessment. Many real estate-focused web-sites have mortgage calculators to help figure out what your monthly payments would be.
• Pay down your debt.The debt you carry on credit cards will limit the loan amount a lender will be willing to give you. Lenders typically want to see a total debt service ratio that is less than 40 percent of your monthly income.
• Attend a first-time home buying seminar or talk to a credit counselor who does not work for a lender. The U.S. Department of Housing and Urban Development (HUD) offers free housing counseling and seminars; visit www.hud.gov or call HUD’s interactive voice system at (800) 569-4287.
• HUD also has a booklet on its site called “Buying Your Home: Settlement Costs and Helpful Information.” It describes the home-buying and settlement process and explains most of the expenses you will encounter. It is free and most lenders are required to provide their loan applicants with a copy of this document under the Real Estate Settlement Procedures Act (RESPA).
• When you have done your research, visit a lender and find out which loans are available to you. Then, get pre-approved. This will tell you how much money the lender is willing to loan you, and you will know what price range you should be shopping in. Pre-approval also enables you to quickly make an offer when you find a home, and is attractive to sellers who are considering multiple offers. A lender’s pre-approval would still be subject to final verification of your credit and a satisfactory appraisal.
Karen Nakamura is executive vice president/CEO of the Building Industry Association of Hawaii.