I love working with first-time home buyers. There's lots of curiosity when first-time buyers start the process and I love answering questions and providing structure in what can be a scary process for many people. For me,
the process is thrilling. Underneath the anxiety and excitement of finding a home exists a significant opportunity to learn. I'm someone who loves learning, and I love applying what I've learned and to help clients succeed. If you're reading my blog I imagine you have some interest in learning too, so let's dive a little deeper.
Understanding Who First Time Home Buyers Are
There's been a HUGE wave of first-time buyers entering the market: Millennials.
According to Zillow: "...it’s the Millennial generation (defined here as buyers 18-37) that makes up the largest segment of home buyers today (42 percent of all buyers who purchased a home in the past 12 months)." Of first-time buyers, Millennial's accounted for 72% of this group.
Paying for a Home: Cash or a Loan
If you happen to have several hundred thousand dollars in cash laying around, fantastic. Paying cash for a home will make your offer more competitive and you will incur fewer costs. The rest of us rely on financing through loans. In fact, even those WITH cash may choose to finance as there are some benefits to investing money in other non-real estate related assets.
Getting a Loan
Whether you know you need a loan, or you’re on the fence, it's best to talk to a lender. Even still, the lending industry can be complex and have many nuances. Real Estate agents aren't legally able to give financial advice but a lender can. I recommend asking a friend, coworker, or family member if they know any lenders. There are lots of options so here are a few of the more popular types:
-Banks or credit unions often have a mortgage department. Credit unions are famous for offering low rates. Call your bank and ask.
-Online lenders like Quicken Loans have no traditional brick and mortar location, which saves money for the company and potentially for you. Some clients love this method and are able to save money by acquiring a loan at a lower interest rate.
-Mortgage Brokerage: These companies work with several different groups to give you access to a wide variety of loan options. They often show greater flexibility as they aren't the ones lending the money.
-State/local home buying assistance program: These programs vary by state and not all first time buyers may qualify. Virginia DOES have a couple programs for first time buyers and they are worth investigating.
Try this Bankrate article for a more detailed overview of loans commonly used by first time buyers.
What a Lender Wants and What a Lender Gives
If you're just getting started in the real estate world, it’s important to become familiar with the loan process and your personal loan options. A lender can provide you with estimates. In order to determine how much financing you qualify for, lenders take information about your credit rating, your debts (rent, mortgage, auto/personal loans, etc), and your income. They look objectively at your income and debt in order to make the right type of loan for you.
In return, a lender gives you a better idea of what price range to be shopping for when you look at homes. They’ll also let you know what your total loan would look like in terms of total payment per month. In my experience, most first time buyers find that lenders will loan them more money than they need. But that's a topic for another day.
It's important to know that you don't HAVE to work with a lender, even if he or she gave you quotes. When it's time to apply for the loan you can apply with any lending institution regardless of who you have been speaking with previously. You may have heard people talk about 'shopping around for better rates' and that's this process: talking to various lenders, getting quotes, and then finally picking who you want to work with. It can be exhausting but some find the savings to be worth the time.
Now that you know how much you can afford it's time to reach out and find a real estate agent who can help you take the next step. Shameless plug: I would love to speak with you.