Let’s Make Money Moves- First Time Homebuyer Tips
You constantly hear me refer to this Real Estate Market as the Wild Wild West. If you haven't kept up with the market, this has indeed been a Seller's Market -A seller's market arises when demand exceeds supply. In other words, there are many interested buyers, but the real estate inventory is low. Since there are fewer homes available, sellers are at an advantage. In a seller's market, homes sell faster, and buyers must compete to secure a property.
Case in point, I was working with Buyers on the East side of Orlando, in which there was a line out the door for Real Estate Agents and their clients to see the property. It was the wildest thing I've ever seen since having my Real Estate License in 2014. I did not let the long line of prospective buyers deter my clients, and we did put in an offer in which, unfortunately, we didn't win the bid. The seller received 30 offers within four days it was on the market, and they essentially went with a Cash-Offer that had no contingencies.
What's Causing This Seller's Market?
According to Fortune Magazine, we're in the middle of a five-year period in which the most significant chunk of millennials, those born between 1989 and 1993, are hitting their thirties, the age when first time home buying kicks into gear. The market wasn't ready for this influx; builders played it safe during the 2010 decade after the housing crisis. As a result, the nation is under-built by around 4 million homes, according to Freddie Mac.
Also, due to the effects of COVID-19 on the housing market, recession-induced low mortgage rates with work-from-home orders allowed buyers to search for properties in the suburbs since a reasonable commute was no longer a top factor in finding a home. This all helped to drive this market further. While inventory is on the rise, it's still well below pre-pandemic levels and simply unable to meet current demands, and this is why prices are higher.
I know this is a lot of information to process, and I am not trying to deter you, but there are so many things to consider when Buying a Home, especially as a First-Time Home Buyer.
Pay Down Debts
In my Professional Opinion, you should minimize a majority of your debts before purchasing a home. What I do know to be accurate is that owning a home is expensive, and it adds up quickly. Anything type of maintenance issue or repair will be your responsibility. Plus, to be Pre-approved for a Mortgage, your Debt-to-Income ratio - monthly debt payments divided by your gross monthly income is considered.
As we saw after the Housing crash, borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments. The 43 percent debt-to-income ratio is important because, in most cases, that is the highest ratio a borrower can have and still get a Qualified Mortgage.
Save, Save, Save
It's so important to have a Large Nest Egg before purchasing a home; the thought that you don't need to pay any money out of pocket to buy a home is so false. For a Conventional Loan, the average down payment is 10-20%. So for a property that is $200,000, the minimum down payment would be $20,000. I would say 20% is ideal to avoid paying Private Mortgage Insurance (PMI), which protects the mortgage company if you can't make your payments and end up in foreclosure.
Then you also have to pay closings costs. On average, closing costs are 3-4% of the purchase price of your home. Of course, your lender will give you a specific number, so you know what to bring to closing day. These fees pay for crucial steps of the home buying process.
Appraisal
Home inspection
Credit report
Attorney (Some States)
Homeowners insurance
A with the price point of $200,000 by 4% average closing cost, the amount needed at closing would be $8,000. You are adding that to the 10% down payment of $20,000. So altogether, you'll need about $28,000 for the down payment and closing costs on your home.
I would also advise at least having a minimum of three months to ideally six months of savings for expenses; the last thing you'd want to do is wipe out your savings and leave yourself vulnerable when any emergencies arise.
Recently one of my clients closed on a home, and a few weeks after closing, the A/C flooded and had to be replaced. That's an easy $4500-$6000 out of pocket.
Create a Budget and Stick To It
If I could bold this tip any more, I totally would. It's essential to calculate how much you can afford for your mortgage payment. A good rule of thumb is to ensure that your monthly mortgage payment is no more than 25% of your monthly take-home pay. This Monthly Housing Calculator is a good resource. Also, keep in mind that your monthly housing costs (including HOA fees, taxes, insurance, etc.)
For example, if you take home $5,000 a month and multiply that by 25%, establish your maximum monthly house payment of $1250. But don't forget that property taxes and homeowners' insurance factor into that monthly payment. This Mortgage Calculator from Dave Ramsey is a great resource as well.
Please keep in mind that the average HOA fees range from $100-$300/month. If you're in a Condominium or Townhome in a resort-like community, expect to pay more. This is where it gets tricky; if we continue to use our home priced at $200,000, the estimated monthly payment would be $1224, but that isn't including the HOA. So essentially, you'd now have to start looking at properties listed at $175,000 to stay within your budget.
Work with a Real Estate Agent
I'm sure this is a lot of information to digest, and it can be overwhelming. But it's crucial for me in my Profession to give my clients all the facts and allow them to make an informed decision.
Your first home is an important decision and a large purchase, probably one of the biggest you've made at this point. There is so much at stake. A Licensed Real Estate Agent will help you manage this process from helping you find a home, negotiating the deal, and seeing the process through until closing.
About the Me
I am a Licensed Real Estate Sales Agent with the Boutique Firm – Hotard Realty in Winter Park, Florida. My goal for every closing is that my clients are confident I delivered the best deal for them. I currently own and manage several rental properties throughout Central Florida with my Husband and I have firsthand experience of every side of a Real Estate Transaction. Having been raised between Central Florida and Jamaica, my personality is a unique blend of Southern charm and Caribbean Candidness. I am a Five-Star Zillow Agent and I am passionate about making homeownership a reality for her clients.
Photoshoot Details
Photographer - Melissa Ortiz Photography
Makeup - Nae Sterling
