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Tips for First-Time Homebuyers

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Buying your first home can be a scary proposition, but there has never been a better time to do so.  Interest rates are incredibly low and the price of homes has leveled off, making the dream of homeownership achievable.  Even so, it is important to prepare yourself for the most important financial decision you may make in your lifetime.

Below are suggestions and links to websites to help the first time homebuyer navigate this process smoothly:

1. As soon as you start thinking of buying a home, obtain a free credit report at www.annualcreditreport.com.  Look closely at the report for discrepancies.  Write to creditors if you notice mistakes.  Consider closing accounts that you no longer use and don’t open any new lines of credit until your home purchase is complete.  Start paying down debt and saving for a down payment and closing costs.  Take it a step further and find out what your credit score is by visiting one of the major credit reporting agencies like Eqifax: http://www.equifax.com/home/ .A poor credit report will raise the interest rate that you receive and potentially increase your monthly mortgage payment by several hundred dollars.  Also, in today’s tight lending climate, a poor credit report may mean that you won’t even qualify for a mortgage.
2. Determine how much house you can afford.  Some lenders or realtors may encourage you to consider taking out a larger mortgage or buying more house than you can truly afford. So do some soul searching.  Sit down and take an honest look at your current income and expenses.   As a good rule of thumb, your annual mortgage payment, taxes and homeowner’s insurance shouldn’t exceed 28% of your gross income.  Don’t forget to factor in Private Mortgage Insurance if you are not able to make a 20% down payment.  Condo buyers should remember to add monthly association fees. Now, think about future debts that you may incur and potential situations such as loss of a job and how these would impact your ability to make timely mortgage payments in the long term.The Fannie Mae Foundation has several online calculators to help the first time homebuyer determine what they can afford: http://knowyouroptions.com/resources/calculators .
3. There are a surprising number of first time homebuyer programs that either help with closing costs, down payment or provide lower interest rates.  A few  include:
   The Illinois Housing Development Authority:  http://www.ihda.org/

The City of Chicago:  Call 311 and request that they send you a first time homebuyer packet.  It is filled with opportunities available to persons wishing to purchase a home in Chicago.

All sorts of other information is available on the internet or by calling local banks to inquire about less publicized programs that they may offer.

Many first time homebuyer programs require that you use a specific lender.  So make a decision about which program works best for you and then visit the lender that they recommend to request a pre-approval.

If you are not satisfied with the interest rate and closing costs that a lender quotes you, it is a good idea to shop around.  Be cautious though, and don’t let every lender request credit scores through the credit reporting agencies.  A lot of recent inquiries on your credit report will look bad and could lower your score.  Instead, show lenders the credit report that you already obtained and ask that they give you an idea of where you stand before making a commitment to working with them.

• Work with a local realtor to find your dream home.  They know the market and the value of homes in the area.  They will help you to negotiate the best price and will help you to coordinate things like the home inspection and closing details.  Their experience and know how will be an incredible asset in this intimidating process.  They also have at their disposal names of other professionals who you will need like attorneys, home inspectors, lenders and appraisers.  Contact BAPA for the names of local realtors who support our vibrant community or visit our website at www.bapa.org .
•  Once you have decided on a home purchase, hire your own real estate attorney who will attend the closing with you and will look over the good faith estimate, lending terms and property transfer.  Such an attorney will generally charge a fixed rate and in the long run can save you money and aggravation.

 

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