Is Now a Good Time to Buy a Home?

By | Brian Ettleman July 27, 2020

Is Now a Good Time to Buy a Home?

 

What do having your wisdom teeth removed, preparing to welcome a baby and being a first-time home buyer all have in common? Keep reading to find out!

 

Recently, I had my wisdom teeth removed, but learned that I’m still wise enough to help when it comes to walking you through the purchase of your first home. And while I am not officially a  dad yet, I have already started practicing my dad jokes on my clients.

 

You might be surprised that the steps you need to take to purchase your first home are similar to getting ready for a surgical procedure, having a baby or any big life event.

 

Step one:

Do your research. It can be difficult to take the leap from renting to homebuying. Determine if you have a substantial amount of savings to help pay for home repairs or renovations in the future.

 

Step two:

Contact a lender at a community bank, like Bank Iowa and ask about their current mortgage loan products, rates and services.

 

Just like going to the doctors to find out your baby will be a boy; you should stop by the bank to get prequalified. Being prepared for this initial meeting will make prequalifying easier, than well, getting your wisdom teeth pulled.

 

We will help you understand how big of a loan you can qualify for. Checking your credit score and discussing the down payment of home will help determine your ability to get prequalified.

 

I recommend to my clients to have at least 20% of the cost of the home up front to avoid paying for private mortgage insurance (PMI). If you don’t have that, don’t go into labor, there are still options for you.

 

I’ll also ask to see your tax return, W-2s, bank statements and paystubs as proof of income. Students looking to purchase a home right after graduating are encouraged to bring in a diploma.

 

Step three:

Ask if now is the right time to purchase your first home.

 

No one likes surprises, so make sure you have considered all of the costs. Besides the down payment on a home, here are other financial considerations associated with purchasing a home.

  • Mortgage Rate and Terms: While the rate varies day to day based on the housing market, the terms remain constant. The most common term is a 30-year loan.
  • PMI: PMI may be factored in if your down payment is less the 20% of the price. The fee is designed to help cover the bank if the house were to foreclose and provides the bank with enough equity on the home. The fee for PMI varies based on credit score, loan amount and your down payment.
  • Closing Costs: This includes homeowner’s insurance, setting up an escrow account for taxes and insurance, title of home, lender and realtor costs. These costs can sum up to be 2% to 5% of the purchase price.

 

Step four:

Take the Plunge (slowly). Once you have a strong foundation for buying a home, contact a realtor to start searching for your dream home. Take your time during this process and bring a checklist for your must-haves in a home and assess the pros and cons after each tour.

 

My wife and I looked at 17 homes before we found our perfect fit that we knew we’d want to raise a family in. Ask your parents or friends to tour homes with you to give their input. Trust in their opinions as they may help see problem areas could cost you down the line.

 

At a high-level, these steps have helped me through some major life events, and me getting my wisdom teeth removed helped my wife prepare to take care of a much smaller baby in a few weeks. All within our home that we made sure checked every box!

 

*All loans subject to credit and property approval.  The information mentioned above assumes the purchase of a single family, owner-occupied, primary residence.  For illustrative purposes, an example loan amount of $200,000 and an estimated property value of $250,000 was considered.  A down payment of 20% or $50,000 is assumed with closing costs estimated at $1,937.90.  The assumed credit score is 740.  At a 2.750% interest rate, the Annual Percentage Rate (APR) for this loan type would be 2.788%. The payment schedule would be: 359 monthly payments of $816.48 and one final payment of $817.32.  Payments do not include amounts for real estate taxes and homeowner’s insurance, which would result in higher monthly payments.  The actual interest rate and APR may differ depending on your credit history and loan characteristics.