For first-time home buyers, the process of buying a home in Lake Forest Park, WA can be overwhelming and anxiety-inducing.
Buying a home, after all, will likely be the largest financial transaction of their lives, LFP is an expensive area and homes are pricey here. Plus, purchasing a house or condo can be complicated and comes with a lot of “unknowns.”
As with any big project, it all begins with asking the right questions before taking the plunge.
Read on to find out what you need to know with these 4 common questions from first-time home buyers in Lake Forest Park, Washington.
Tips For First-Time Home Buyers
– By Emily Cressey, Real Estate Broker
1. Should I BUY a Home Or Continue To RENT?
Most first time home buyers are coming from a background of renting a house or apartment, and are wondering if it makes sense to bite the bullet and BUY a home of their own.
First-time home buyers are often uncertain about committing to a mortgage for the next 30 years. Most of the time, owning a home is a good investment, but sometimes renting is a better option.
Consider Home Equity Build-Up
Buying a home can be a solid investment if you are building equity over time. (Home equity is like your savings account, where you hold wealth. It is the difference between the value of your home and what you owe. For example. If your home were worth $1 Million, and you had an $800K mortgage, your home equity would be $200K.)
Many people in the Seattle area have built a lot of wealth over the years because our real estate values tend to go up very strongly. Over time you will pay down your mortgage… a little each month, which increases your equity. If your property goes up over time… which it tends to do because of inflation and buyer demand, then your equity will increase as home prices go up, as well.
This photo is a screenshot from a software we use called “HomeBot” which can keep you informed of your home equity as the market changes and your debt is paid down.
What Do You Have To Show After Years of Renting?
When you write that monthly rent check to your landlord each month, the money is gone forever.
But when you make a mortgage payment, you are building a wealth. A portion of your mortgage payment goes toward principal pay down… that’s essentially like a savings account represented by your home equity. The longer you’re in your property, the larger percentage of your payment will go toward principal pay down.
In addition to building equity, you may be able to save on taxes as well. Ask your accountant whether you can deduct mortgage interest and property taxes.
Is Renting Really Best For You?
Wealth-building opportunities of home ownership aside, it’s very possible renting may be the best option for you if you fit into one of these categories.
For example, if you plan to live in the home for only a few years, you may be better off financially to continue renting because there won’t be time to build any equity. I typically say you should plan to live in the house for at least five years, or else you shouldn’t buy it.
Also, home ownership comes with a great deal of responsibility such as taking care of the yard, and keeping up with household maintenance, which can come with a cost. If you’re not ready to take on those responsibilities, renting will likely be a better option.
Still not sure what’s right for you? Check out this infographic:
2. Is My Credit Good Enough To Buy A Home?
Most first-time home buyers in Lake Forest Park, WA have concerns about their credit, specifically whether their credit is good enough to allow them to get a mortgage to buy a house.
In general, the higher your credit score, the better off you’ll be mortgage-wise. With a higher credit score, you can a less expensive mortgage. Good credit means you can qualify for the best interest rates and won’t have to pay so many fees when you get the loan, which will mean you pay less in the long run.
Conventional lenders usually require a minimum credit score of 620, but with 740 or higher, you can expect to get a better mortgage rate.
If, however, your score isn’t quite that good, you can still qualify for a home loan, even as a first-time home buyer. For example, home buyers with a minimum score of 500 can qualify for an FHA loan, which requires no more than a 10% down payment and typically has a lower interest rate than a conventional loan. So be sure to contact us at (206) 578-3438 to find out about mortgage-assistance programs if your credit score is less than sterling.
If you want to talk to one of our recommended lenders, click here.
3. What Are The Costs Involved In Buying A Home In Lake Forest Park?
Knowing that the cost of buying a home goes well beyond the mortgage payments, first-time home buyers commonly want to know what the full and actual cost of buying a home is. Good question!
Down Payment: First, there’s the down payment, which can range from 20% of the purchase price for a conventional loan to 3.5% for a government-backed loan like an FHA loan.
Closing Costs: And then there are the closing costs, which typically amount to about 2%-6% of the purchase price. These costs are often to pay the service providers, like the lender or mortgage broker; and the Escrow/Title Agent or attorney, who are handling your transaction. Your loan pay require extra “points” (one point = 1% of the loan) if you are trying to “buy down the interest rate.
The closing costs are usually paid “with cash” – but they may be something you can roll into the loan cost or have the seller pay for you. We have had good luck lately in getting our buyer clients’ closing costs covered by the home sellers!
Fees and Pre-Paid Costs: Buyers may also need to pre-pay some of their bills at closing. For example, you may pre-pay a month or two HOA dues or Private Mortgage Insurance. You may also need to pay for your home owner’s insurance policy and any property taxes that are due.
Commissions: Almost all buyers work with a real estate agent when purchasing a home. The realtor has to get paid, just like everybody else. Typically their commission is about 3% of the purchase price of the home although this varies. The good news is that you will not be required to pay this out of your side of the closing. In most cases where a home has been listed for sale with a real estate agent, the seller’s agent has already negotiated the AMOUNT of the commission and will pay both realtor’s commissions from their proceeds at the closing.
The total cost of buying a home varies from market to market, so to get a handle on this cost, your best bet is give us a buzz and we can have your lender or our escrow company provide a sample closing statement to give you an idea of what this will look like. Just call (206) 578-3438 to find out more.
4. What’s Involved In The Home Buying Process?
First-time home buyers usually wonder about the whole process of buying a home, since they’ve never been through it before.
The common steps for buying a home are . . .
- Getting pre-approved for a mortgage
- Finding a good real estate agent
- Shopping for a home
- Making an offer and negotiating
- Getting a home inspection
- Gathering paperwork and preparing for closing
- Closing – Sign the papers and get the keys!
At closing, the final step in the process, documents are signed, money changes hands, and you get the keys to your new home. This is the moment you’ve been waiting for. Note that you typically do not get the keys at the attorneys office. The key handoff will happen hours (possibly days) later when the documents have been recorded at the King or Snohomish County recorder’s office.
Next Steps For First-Time Home Buyers
If you’re excited about buying a home, but still want a little more clarity on the process, I have put together this special video for more in-depth information for first-time home buyers. Here, I walk you through everything, and I expect by the end you will feel ready to take your first steps toward buying a home!
I encourage you to watch this right now and you will feel excited and prepared to buy your home!
In this class, we will discuss:
- The wealth-building benefits of buying your first home
- What to look for in a home for sale
- How to negotiate to buy your property
- Financing tips, tricks, and grants!
Please join us, and if you have additional questions, make an appointment to speak with Emily at HomePro Associates on Emily’s Calendar. Calendly.com/EmilyCressey
Lean on Your LFP Real Estate Agent’s Expertise
A final common question from first-time home buyers is this: “Do I really need an agent?”
The short answer is that most of the time they do.
Buying a home is a complex process, and a good local agent can help you get the best deal possible.
So if you’re among the first-time home buyers in Lake Forest Park, be sure to contact us at (206) 578-3438.