The best way to describe the homebuying process is a wild rollercoaster ride that is equally frightening as it is thrilling. Whether it is your first or fifth time buying a home, the market is always changing, and no two homebuying experiences are ever the same. There is a lot to consider when purchasing a home. Here’s some sage advice from experts in New Mexico real estate and financial institutions.
Let’s Talk Money
The first step in the homebuying process is to assess your finances and figure out how much house you can afford. You can achieve this by speaking to a financial advisor or by doing some math yourself.
Experts recommend that you should spend no more than 28 percent of your gross monthly income on home-related expenses. This includes a mortgage with interest, insurance, taxes, utilities, repairs, etc.
Educate yourself on what the current market is like, what the whole homebuying process entails, and how much time, money, and responsibility it takes to become a homeowner. Knowledge and a clear understanding are key in this process.
Amy Hummer, owner and qualifying broker at Better Homes and Garden Real Estate – Steinborn & Associates, recommends starting to save for your down payment as soon as possible and working diligently to pay down debt.
Homebuying Loan Options
Purchasing a home is one of the largest investments someone can make. In most cases, buyers will seek financing from a mortgage lender. With this route, preapprovals are important when making an offer on a home. Listing agents and sellers want to know that prospective buyers are qualified for the money they are offering.
There are many types of homebuying loans available, but the two that are used most frequently are Federal Housing Administration (FHA) loans and conventional loans. FHA loans provide government-backed mortgages that are insured by the FHA. They are designed for buyers with low to moderate income and higher levels of debt. Buyers also can have lower credit scores and still qualify. FHA loans require a minimum of 3.5 percent, in comparison to the usual 20 percent, as a down payment and buyers can only use this type of loan to finance their primary residence.
“Keep in mind, for those with less than perfect credit, FHA loans offer benefits,” says Amy. “The government backing means average FHA interest rates are typically lower than average rates of conventional mortgages.”
On the other hand, conventional loans are designed for buyers with a low debt-to-income ratio but require a high credit score to qualify and a larger down payment. With this type of loan, you can finance a primary residence, vacation home, or rental property. The biggest difference is that conventional loans are not backed by the government.
Shop around and look at different lending institutions and credit unions to find the one that you trust the most. “Talk to lenders and understand the homebuying process and what you qualify to buy,” Amy advises. “It’s critical that you set a budget before falling in love with a house. Determine how much home you can afford before you begin looking at listings on the market.”
Looking for the Perfect Property
You have been pre-approved by your chosen mortgage company or credit union and know how much you can afford. Here comes the fun part: the actual house hunting! This is the time to make a list of your needs and wants.
For example, needs could be the number of bedrooms and bathrooms, a garage, a laundry room, refrigerated air, appliances, etc. Features such as granite countertops, jetted tubs, floor covering preferences, magnificent views, and other extras could be considered wants. It is completely up to you what you deem a “need” and a “want.” This list will help you compare homes that you view.
“A buyer must have the discipline to stay within their budget or they may put themselves in a stressful financial position,” says Ricky Allen, managing partner at Santa Fe Real Estate Professionals and Sotheby’s International Realty.
Don’t let the fear of your offer being outbid or too low make you go over your budget. Another aspect to keep in mind is the neighborhood in which you are looking to buy.
Do your research and, if possible, talk to those already living in the area because you might find the perfect home for the perfect price, but it could be in a not-so-perfect neighborhood. The area and those who live around you can have a major impact on the value of your home in the future and your overall happiness in your new home. Zillow and Trulia are also great sources to research different areas in the city you are considering.
Tips for First-Time Homebuyers
Considering purchasing a home as a first-time buyer is exciting, but you will need help along the way. Step one is to make sure you have a clear understanding of the process and what it entails. Here’s some expert advice to get you started and help you along the way.
build a trustworthy homebuying team
“Building a team of people you trust” is the first tip Senior Vice President of Mortgage Services at Nusenda Credit Union Alan Fowler would give any first-time homebuyer. A real estate agent who is open, honest, and willing to guide you every step of the way is very helpful.
Recent first-time home buyer Joe Zimmerly agrees. “My real estate agent and lending officer were always there to answer any questions I had and didn’t make me feel like I should know everything already. It was comforting to know that I had people on my side to help me with each step of the process.”
Amy suggests “finding a REALTOR® that listens to your needs, understands your timeline and financial position, and is a strong communicator so that you feel confident in the homebuying process.”
“Buying your first home can be a daunting process,” says Carl Krause, team leader and REALTOR® with Las Cruces Home Team at Enchanted Sun Realty. “Most first-time home buyers will face things that they have never experienced and will be expected to make decisions that they may not be prepared to make.”
Despite this journey being uncharted territory, if you make becoming a homeowner a priority instead of just a thought the homebuying process will be much easier. “It helps create a mindset of dealing with the challenges along the way,” says Carl. “This mindset, along with the advice and counsel of trusted professionals, can help you overcome and find solutions for any obstacles that come up along the way.”
Telling your real estate agent that you are a first-time homebuyer right off the bat is important. “I tell my first-time home buyers I want to help inform them about the homebuying process before we even think about specific homes,” says Ricky. “I explain all of the different roles involved in the process, including lenders, title companies, inspections, appraisals, etc. Most first-time home buyers don’t have a solid understanding of this process.”
Assess your Finances
“Budgeting is always key,” Alan explains. “The first thing to do is look at what you are paying now for rent and what you feel comfortable paying for a home. Try living with that payment for a while before deciding to buy.”
Lenders will qualify you based on your income, credit history, debt, and other standard figures but they don’t know how you live your personal life and spend your money. It is up to you to know what you can afford monthly.
By doing this experiment you will be able to enter the homebuying process with more confidence. “You can put that extra money in savings, or you can use it towards a higher down payment or your mortgage.”
New Mexico offers assistance for first-time homebuyers which helps with down payment and closing costs. For more information on how to qualify for this assistance, ask your financial advisor or visit a mortgage loan officer. You can learn more at housingnm.org.
The homebuying process is a complicated one but with the right team and some self-education, you are sure to find the right home for you and your family without running into any surprises.
Happy house hunting!
Story by Olivia Belcher
Originally published in Neighbors magazine | 2023
Posted by LasCruces.com