Many consumers like the idea of home ownership and have considered buying a home, but simply think the process is too overwhelming or expensive. When is the best time to buy a home? What are closing costs and how much money will I need for them? Who opens escrow and what is it? How do I know what type of home loan is best for me?
Here are some of the top fears of buying a home for the first time and how to overcome them.
1) I’ve had bad credit. Can I still even become a home buyer? The answer is yes. Contrary to what you hear in the media, lending guidelines have loosened up significantly over the past few years and qualifying which has opened up the dream of home ownership to a larger population of consumers. Many government backed loans like FHA loans or VA loans if you qualify, do not require high credit scores whatsoever to obtain.
2) I don’t have much for a down payment. Are there special incentives for First Time homebuyers? Yes. Special programs like the HomePath Ready Buyer program, allows a San Diego first time home buyer (defined as those who have not owned a home in the past three years) to take an online course, get certified, and become eligible for up to a 3% contribution towards the homebuyers closing costs. Loan types like FHA loans and VA loans also have very low down payment requirements and work well with Down Payment Assistance programs.
3) I hear conflicting housing reports in the media. When is the best time to buy a home? This question can be answered many different ways and has many different points of view. One great way to look at this question if you have stability in your income and want a greater sense of long term security in your housing situation, then buying a home now might be the right time for you.
Buying a home is an investment in your future and enables you to put down some roots in a community you love. When you rent, you write your monthly check and that money is gone forever. Your landlord can sell the home at anytime or may raise your rent each time your lease comes up for renewal.
But when you own your home, you can deduct the cost of your mortgage loan interest from your federal income taxes, and usually from your state taxes. This will save you a lot each year, because the interest you pay will make up most of your monthly payment for most of the years of your mortgage. You can also deduct the property taxes you pay as a homeowner. In addition, the value of your home may go up over the years and you are in control of your monthly payment. You also have the ability to actually reduce the payment through refinancing when interest rates are low.
4) I hear the term “in escrow” quite a bit, but don’t actually know what it means. In California this is a sort of slang term meaning you are going through the process of purchasing a home. An escrow company is hired to hold all the funds for the transaction as well as important documents. The escrow acts as a central hub for the buyer, seller, lender and broker to deposit or receive funds from. The typical time frame of the escrow period is 30-45 days from start (opening escrow) to finish (closing escrow).
5) What is Earnest Money, is it refundable, where does it go and how much do I need? This is a very common question from First Time homebuyers and is less scarier than most make it out to be. In a nutshell, the earnest money deposit tells the seller you’re a committed buyer and intend to complete the home purchase of the home they are selling should all the terms and conditions of the purchase agreement be met. The Earnest Money Deposit amount is negotiable but is typically between 1-2% of the purchase price. The Earnest Money deposit is held with the escrow company and gets applied towards your down payment and closing costs when you are ready to complete the sale. The Earnest Money Deposit is refundable per the agreed upon terms and conditions of the purchase agreement.
6) I’ve heard stories of bad real estate Brokers. Should I use a real estate broker? How do I find a good one? Real estate brokers are held to a very high standard of ethics and professional standards. The major advantage of using a real estate broker is to “level the playing field” between a home buyer and a home seller. A home seller who has bought and sold many homes would have a significant advantage over a First Time homebuyer who has not been through the process. A skilled real estate broker is able to negotiate price and terms on your behalf, provide advice and feedback, ensure the terms and conditions of the purchase are followed correctly, navigate challenges and problems that arise while “in escrow”, coordinate tasks and appointments with all parties involved, and much more.
To find a good San Diego real estate broker you can go off of a referral from a friend or family member that has actually used that particular broker or you can check reviews of local Realtors. Finding a real estate broker with lot’s of experience in buying and selling homes is also an important factor. Brokers with lot’s of sales under their belt typically have a better understanding of the local market housing trends, negotiating skills, and problem solving tactics.
While these are just some of the top common fears of buying a home for the first time, they are not the only. If something scares you about the buying process, ask questions to your friends and family about their experiences and how they overcame them. Although most will say there were bumps in the road to their home buying story, you will find that very few, if any, will say they regret the choice of becoming a home owner.