With all the paperwork, jargon and multiple payments, buying a home for the first time can be a daunting task. Educating yourself as much as possible beforehand is a surefire way to gain control during one of the most important purchases of your life. Here are some things to keep in mind.
According to Massachusetts realtor Tami Dome, there is typically an “offer to purchase,” which is a deposit that counts toward your down payment. Then there is a “purchase and sale agreement” that follows a home inspection (more on that later). There is usually an application fee and closing costs, and some states also require the first full year of homeowners insurance before closing, Dome says. If you are building a home, usually there is an earnest payment (similar to the “offer to purchase”) that counts toward your down payment. This is needed for the builder to start construction.
According to the U.S. Department of Housing and Urban Development, you will need your social security number; copies of your checking and savings statements for the past six months; a recent paycheck stub; all credit card statements; a list of other outstanding loans and their balances, such as car or student loans; and copies of the last two years’ income tax statements. You will also have to provide the name and address of someone who can verify employment.
“Depending on the type of loan a person applies for, a mortgage usually covers your principal, interest, real estate taxes and oftentimes homeowners' insurance as well,” Dome says. The taxes and insurance are escrowed with your monthly payment. Dome says to keep in mind that when taxes and insurance are incorporated, the payment can fluctuate over time if taxes or insurance adjusts each year. “Prior to a change happening, you will be notified,” she says.
There are things you personally can watch out for while initially examining the property (for tips, read “4 things to inspect before buying a home”). But before closing on the house, whether you’re building from scratch or buying an existing home, hire a home inspector to perform tests on the home, such as testing for radon, lead paint, water quality and mold.
“The minimal cost of a home inspection is nothing compared with the potentially thousands of dollars that you could uncover in work that is needed in a home,” Dome says.
It’s best if the buyers and their agents all attend the home inspection. “It is very educational for all parties purchasing the home to learn about the mechanics and structure of the home they are spending hundreds of thousands of dollars on,” she says. “You learn about important tips for maintenance on all areas of the home and what to watch out for, whether it is immediate or future repairs that the home may need.”
For more tips on buying your first home, visit HUD’s website at HUD.gov/buying/comq.cfm.