Basic Steps For First-Time Homebuyers
If you’re thinking of buying a home, and a first-time homebuyer, your home will probably be the largest, most important purchase in your life. There are a few basics to take into account before you buy.
Consider the length of time you expect to be living in a home. How secure is your job? Will you be relocating or switching jobs and moving within the next five years?
Your monthly mortgage payment is made up of principal, interest, taxes and insurance. In the first years of home ownership, most of your mortgage payment will go toward paying interest on the loan. Using an example of buying a $200,000 home with a 30-year fixed mortgage, 4% interest and $10,000 down payment - almost $600 a month will go toward interest, and a little more than $250 a month will go to principal. Each year, as you pay down the loan, more money will toward the principal. The longer you own your home, the more you will be paying down the mortgage.
A main objective in owning a home is acquiring equity. The equity is the difference between the market value of your home and what you owe on it. If you owe $180,000 on your home and the market value is $200,000, your equity is $20,000. If you know you’ll be moving within a year or two, you won’t be contributing very much to the equity.
If you decide to sell your home within the first few years, and depending on the market, by the time you pay the transaction costs of selling the home you may have to pay out of your pocket and lose the money you put down as a down payment. On the other side of the coin, if you’re in a hot market, such as Colorado right now, you may sell your home in a few years and make a profit.
Do your “due diligence” on other costs such as homeowner association (HOA) fees and maintenance costs. HOA fees in particular can add hundreds of dollars to your monthly payment. Carefully read, or have an Real Estate/HOA Defense Attorney review the rules of the HOA community, the Declaration of Covenants, Conditions, and Restrictions (CC&Rs) and bylaws. You may discover a special assessment will be charged soon. A special assessment could be repaving a parking lot adding hundreds of dollars to your monthly HOA fee or a flat fee for thousands of dollars.
The CC&Rs or bylaws are very important to your overall life. Perhaps you were considering setting up a hobby in your garage, or adding a hot tub on your patio - under your HOA, these might not be allowed. Some HOAs dictate the exact color of window blinds you install, type of dog you own or what kind of flower you plant in your yard. It’s crucial to understand all the HOA rules and regulations before buying.
Compare the prices of similar homes in the area you want to buy. Educating yourself with comparable home sales may help you negotiate a fair price. While checking out the area, don’t forget to look at the schools, shops, restaurants and businesses too.
Buying a first home is usually an emotional experience. There’s excitement at having more room, being able to decorate and having a place that’s yours. Don’t let your emotions rule a sound decision. Don’t buy a home because you fell in love with the kitchen cabinets or the back patio had a grill - these are superficial elements to base a determination on. Look at the overall and long-term considerations before coming to a decision.
Becoming a homeowner is a big step and it makes sense to look at all the aspects, laws and regulations before deciding to own a home. Consider retaining a qualified and experienced real estate attorney, who is also a real estate agent and has experience in HOA defense. You will be signing a legal and binding contract for your home. You want to ensure there aren’t any fine print surprises.
Basic steps for first-time homebuyers include determining how much you can afford, finding a good mortgage broker and real estate agent or real estate attorney, finding a home with equity, and reviewing all real estate and HOA docs before closing with an experienced real estate lawyer.
If you have questions regarding purchasing a home, call Gantenbein Law Firm at 303-618-2122.