Buying a home for the first time can be scary. It’s the biggest investment one will probably ever make and of course should not be entered into lightly. But with the drop in home prices, mortgage rates at an historical low and ample properties on the market, this is a home buyer’s dream. With a few tips and some patience, your dream home might be within reach!
FHA or Conventional Mortgage
When choosing a mortgage, there are several circumstances to weigh, and those considerations extend far beyond the amount monthly payment. Depending on your long term plans, the option of FHA versus a conventional loan is one to be considered.
When choosing which type of mortgage to take on, ask yourself the following questions; How long do I plan on living in this house? How much money do I have to put down on the house? Is the interest rate different for one type of loan versus the other? If you are planning on moving in say 10 years, you might want to consider FHA, since they offer what is called an “assumable rate.”
The advantage to this is if you sell your home at a time when the rates are higher than what your mortgage is, you can sell your home to a qualified buyer who can assume your rate for the remainder of your mortgage. For example, if you have 20 years left at 4.25%, then the buyer takes 20 years at that rate and the remaining 10 at what the rate of the time of the mortgage is. While this may seem like a minor detail, this could make someone buy your house over someone else’s if the rates are at 6% when you go to sell.
If you have less than 10% down, then FHA is pretty much your only option. If your down payment is more than 20% of the purchase price, then conventional makes more sense since you don’t have to take mortgage insurance. The best advice is to shop around for mortgage companies and look for the best rates. Be sure to actually speak to someone live and not just through a chat room, and establish a relationship with your mortgage broker. Be sure to ask questions!
Gas, Oil or Electric Heat
Heating costs can vary and when purchasing a home, this is one matter you don’t want to over look. While oil burns well and gives a “hot heat,” the price is volatile. When the price of oil gets significantly higher, so do your heating costs. While most oil tanks hold enough that you only have to fill once per winter, your costs could vary from $300 to $1200 per winter depending on the size of the oil tank, the efficiency of your boiler, and the price of oil.
Natural gas is a bigger initial investment, especially if you have to convert over to gas. A high efficiency boiler can run at about 97%, therefore while the initial cost of the boiler is a little higher, over time your heating costs are more stable than with oil’s potential fluctuation.
Electric heat is the most expensive out there and many home owners seek to switch to a more efficient, more cost effective heat source. As a general rule of thumb, when buying a home, request copies of the monthly utility costs.
Is This a Flood Zone?
This is a question EVERY homebuyer should ask before they even see the property. While homeowners insurance covers MANY things, floods are a separate insurance. If you have a mortgage, and your home falls in an A-Flood Zone, you MUST take out the state regulated flood insurance, which could amount up to $1800 per year. This insurance is not tax deductible, therefore it’s worth checking the flood maps through FEMA before making a bid on a house. An extra 50-60K over the course of 30 years adds up!
Do I Need an Attorney?
In a single word, YES! While some buyers opt to forgo this $800-$1100 service in order to save money, in the end, it could end up costing you your life savings. While the job of the realtor is to negotiate, the lawyer’s job is to make things legal, therefore you are protected should something go awry. The lawyer reviews the contractual offer, puts in any addendum of a detail that isn’t covered in the contract, and helps protect the buyer should something go wrong. First time home buyers should not pass up this service.
Seek out your own attorney, rather than use one your realtor recommends. At times, realtors and attorneys work together, and while this isn’t necessarily a bad thing, you want to be sure your attorney has YOUR best interest in mind.
Buying a home can be an exciting time, though stressful as well. The best advice is to shop around, don’t rush, and be sure the house you choose “feels right.” The process is long, the time is stressful, but with a few tips and some patience, it can be one of the most rewarding experiences you will ever have.