When it comes to major investments, no one likes surprises. Buying a home is one of those big life moments. In addition to the purchase price of a home, there are a variety of additional costs that first-time buyers may not be familiar with, including appraisal fees and title insurance.
Qualified REALTORS®, mortgage lenders and brokers have the experience to give home buyers the information and edge they need to compete with less stress and more success.
The Cost of Being Competitive
A competitive offer in today’s tight housing market is usually above the asking price. And, to get an accepted offer, it is vital for buyers to have their finances in order.
Prequalifying for a loan is no longer enough to “stay in the game.” Buyers should enter the process with a pre-approved loan, meaning the mortgage lender or broker has reviewed the buyers’ credit and income and put the information through the underwriting process. In essence, this lets the seller know that a buyer can back up their offer.
Kim Curtis, a mortgage banker with Wisconsin Mortgage Corporation says, “Now more than ever, to be a competitive buyer you need to understand the total costs of buying a home, have your loan lined up and be ready to go.”
Curtis notes that today’s real estate market is anything but business as usual. “I have gone as far as calling the listing agent on my buyer’s behalf to verify my client’s credit, income and assets,” she says. “I will do it if it gives my buyers a competitive edge.”
Expert Strategy Leads to Wins
Experience is essential for a winning financial strategy.
Alex Leykin, CEO of A+ Mortgage Services, Inc., who has been in the lending business for 26 years says, “Buyers lose out on offer after offer because they are not positioned for success. If they come to me early on, I can help set up their finances, counsel them on credit and provide unique options for lending. The government has stepped up and created more opportunities for buyers to know about.”
For example, FHA, Fannie Mae and Freddie Mac have recently expanded what they will accept for a buyer’s credit and employment profile. That means individuals with a lower income or credit score may find a suitable program through these sources. Active-duty military or veterans can purchase a home for no money down. USDA offers a similar financial option for buyers in certain rural communities.
The Average Down Payment
Saving for a down payment on a home is particularly challenging for buyers who are new to the housing market.
Curtis says, “First-time homebuyers will usually put down three to five percent of the accepted offer as a down payment. Buyers who are selling their current property often land in the 20 percent range.”
There is an additional cost of private mortgage insurance (known as PMI) if the homebuyer has a down payment of less than 20 percent. However, that doesn’t mean a bigger down payment is always the right thing to do.
“It is important to have a trusted mortgage professional who will consider every scenario and find a plan that works best with the customer’s budget,” Curtis says. “I recently had a client who was better off putting 15 percent instead of 20 percent down. Even with the PMI, the numbers saved the family money in the long run.”
Additional Home Buying Costs
Beyond the purchase price and down payment, there are fees a homebuyer should anticipate while moving through the process.
Curtis says, “A conservative estimate would be to set aside somewhere between $4,000 to $5,000 to cover additional costs.”
Fees and expenses can include but are not limited to:
- A loan application and credit check
- An appraisal to verify the home’s worth
- A home inspection, which is not required but recommended
- The cost of underwriting to generate and process the loan
- Title insurance
Separate from the services listed above, lenders may require a homebuyer to show reserves, which would be enough money to cover two months of mortgage payments. It is also suggested that homebuyers include moving expenses in their budget.
Reducing Stress on Your Way to Home Ownership
The most powerful way to begin a home-buying journey is to find someone who is an expert in real estate, especially considering the competitive nature of today’s market. This would be a qualified REALTOR and a mortgage lender or broker.
Leykin says, “There are a lot of ways to structure a transaction in the best interest of the buyer and everyone is different. It comes down to having a trusted resource. You want to work with someone with the experience, knowledge and the capability to advise you.”
The concept is especially important when you consider that no two buyers are the same. Curtis says, “Getting to know the needs and goals of the homebuyer is key to a successful outcome.”
The REALTOR® Advantage
A REALTOR is a member of the National Association of REALTORS, is committed to a Code of Ethics and has the expertise to find the right home for everyone. Look for the “R” to determine if your agent is a REALTOR.
Locally, the Greater Milwaukee Association of REALTORS is a 5,500-member strong professional organization dedicated to providing information, services and products to help REALTORs help their clients buy and sell real estate. Visit gmar.com for more information.