My Buyers’ Most Frequently Asked Questions…Answered!

My Top Secrets for Buying Your First Home Series

Buying a home for the first time can be confusing. That’s why the tips and strategies you’ll find in my 8-week series will set you on the right path.  It’s my own unique approach and a “behind the scenes” glimpse of what you should look out for and consider when starting your own search for a home.

Buying a home, especially if it’s your first time, can be complex and confusing, but you are not alone!

Just like most first-time homebuyers, you want to make sure you don’t do something wrong.  Or you might worry that you don’t know what you don’t know!

I hear from my clients all the time about their concerns and questions when buying a home in today’s market.  That’s why I’m here to provide answers to some of the most common questions I get so you can become better informed and more reassured.

The questions swirling around in your mind are likely the same ones that other buyers, like you, want to ask too.  And, more than likely, it was the same questions that buyers who went before you have also asked!

I’ve heard your question before, and even if I haven’t, no question is ever a “dumb question,” so ask away!  And, if you have any questions that aren’t listed below here, reach out and ask!

Even though each buyer’s situation is unique, you’ll find the question/answer sections below helpful in giving you some insight on what steps might be best for you.

Plus, maybe you’ll also learn something “you didn’t know you didn’t know”!

Q:  How do I know the property value will increase?

Although there are no guarantees, there are clues and historical data that are indicative of future performance.

If you know the area is changing and is going to increase in density or desirability, you are likely to see an increase in value over time, perhaps more than other areas.  I tell my clients to not go on hearsay, but look at projects that have actually gone through the planning, development, and funding stages.

Being near highways, restaurants, and stores, is also a good indicator that your value will increase over time.  The good news about the South Jersey market, in general, is that our population is increasing, our unemployment is still low, and our economy is still growing.  That is a recipe for an increase in value over time.

However, you still need to buy smart — each neighborhood, block and/or building can be different and it’s important to understand that you don’t overpay. 

There is an old saying that says:  “you make money in real estate when you buy”, so focus on that and you’ll be fine when you sell.

Q:  What is the difference between an FHA and a Conventional Loan?

This is a question I get from almost all my first-home buyers.   Most first-time home buyers get either an FHA loan or a Conventional loan.    Here is a quick summary of their differences:

FHA Loan

• Backed by the government
• Need a minimum of 580 credit score (may be able to get with a lower credit score with some lenders)
• Minimum down payment of 3.5% or higher
• Additional fees are associated with this loan, such as mortgage insurance, are mandatory, no matter the size of the down payment.
• It is easier to get than conventional, due to looser requirements. 
• Lender additional inspection (part of the appraisal) will be required

Conventional Loan

• Not backed by the government, it is provided by private lenders, such as banks, credit unions, and private companies
• Need a minimum of 620 credit score
• Minimum down payment as low as 3% and higher. 
• If down payment is under 20% than a private mortgage insurance fee will be added to your monthly mortgage payment.  (Note:  once the home value increases 20% you can have this fee removed, but you will have to contact your lender directly – they won’t tell you.)

In summary, both loans are very good.  I tell my buyers, in a competitive seller’s market, the conventional loan has the edge.  If possible, try and get that one.  If not, the FHA is fine, just keep in mind, the competition with other buyers for the same properties, sellers tend to go with the offers that have a higher down payment.  Having a conventional loan with 20% down payment is the gold standard.     FHA is a good product and is backed by the government.  It is the one most buyers use to get their first home.

These are only some of the differences, there are more, but just to give you an idea of what they are.   To find out which loan is best for you, your lender can provide you with more details, once they know your financial situation.

Q: Is it worth it to find something faster when interest rates are low?

No!  Don’t let interest rates dictate your time to buy a home.  Yes, interests rates have been rising, but even if they do rise, I see that it tends to help buyers lessen their competition.

A slight increase in your interest rate is not going to make the home you want unaffordable.  And, just like buying and selling other investments, such as stock, timing the market is never a good idea. 

Buy and sell when the time is right for you.  Speak with an expert about perhaps which month is best, but always go based on your own timeline and schedule.

One thing we know for sure—there will always be homes to buy.  And, when interest rates rise a lot, that often times leads to a slight cooling of prices.

Q:  How do I get a good deal?

Good question and one I focus on for each and every one of my clients!   I always say, you make money when you buy in real estate, so making sure you buy right is HUGE. 

The one and only way to make sure you are getting good deal is to look at the specific neighborhood, building or block you are buying in and compare your home to what has sold over the last six months to a year. 

There will be a range in price depending on specific location (for example, a home with no basement will sell for less) and condition (just renovated will sell for more).  Compare the home you want to buy with what has sold recently to make sure you are not overpaying. 

Also get information from your agent about whether it’s a sellers’ market or a buyers’ market, and make your offer accordingly.  The longer a home sits on the market, the more likely you can get a lower price. 

And please keep this in mind—just because something is “cheap” doesn’t mean it’s a good deal.  Be sure not to make this crucial mistake!

Q:  What are my out-of-pocket costs during the transaction?

During the transaction, you do need to go into your pocket (or your credit card or bank account) to pay for certain items.  They are included in the calculation of your closing costs.

These items include: 

• initial deposit (paid after contract is signed after all parties, this comes out of your down payment)
•  inspections – home, termite, radon, mold (if applicable), sewer (if applicable), tank sweep (if applicable), etc.
• appraisal (paid by credit card to your lender which they will need to place the appraisal order)
• home insurance (lender typically requires a few months to be paid before closing)
• balance of your down payment and closing costs (paid at closing)

When I first meet my buyers, I let them know well in advance all these costs so they can prepare and have the funds ready to go in a timely fashion and not hold up the transaction – and to avoid any surprises! 

Q:  If the house I want is over my price range, does that mean I can’t afford it?

Maybe, maybe not…

I tell my clients to focus on your monthly payments, not just on a purchase price. By doing this, you’ll know what you may or may not be comfortable paying for a home every month.

In other words, focus on the fact that you want to pay, say, $2,500 per month on your new home and NOT on a somewhat arbitrary price point.

Why?

Because for every $10,000 change in price, your monthly payment only goes up about $50 per month.  When you look at it that way, you might be able to afford the home of your dreams or that home you just fell in love with.

So, that extra $20,000 price tag equates into an extra $100 per month.  Is that something you can handle? If so and it’s a home that has everything you’d ever want, go for it…as long as it doesn’t break the bank or make you need to change your lifestyle in any way that is uncomfortable.

On the other hand, if you buy something not as nice for less money, you might have to spend money on repairs, etc. You’ll need to weigh the pros and cons of each situation when determining what is affordable to you.

Next week is one of the most favorite articles — Is the “Paradox of Choice” Derailing Your Home Search?  I tell you the secrets from this book that can help you focus on making a decision and not being overwhelmed by too many choices. You don’t want to miss it!