First time Home buyer in Framingham MA? Then I'm sure you have a lot of questions. What should I do first? What do I need to be prepared for? What questions should I ask my Realtor or Broker? Do I need both? The process of buying your first home can be quite overwhelming. That is why it is important to know the basics and educate yourself on what lies ahead.
Lesson 1. How much should you save for a down payment.
The most important thing to consider before beginning a home search is how much do you have saved for a down payment? The minimum down payment required is currently 3.5% for FHA loans and 5% for conventional loans. Under FHA guidelines the down payment can be in the form of a gift. This is not the case for conventional loans, the 5% must be of your own money. The smaller down payment and gift rule is one of the reasons why many First Time Home Buyers in Framingham MA go the route of FHA loans. {Keep in mind all loan programs where less than 20% is put down will require an additional mortgage insurance payment. Be sure to talk to your Mortgage Professional to know what to expect in those regards.}
Based on the Median home sale prices in Framingham, MA of $266,000 over the prior quarter, I would suggest not beginning a serious home search until you have saved $12,500-$15000 or expect to receive a gift or combination of gift and savings that total $12,500-15,000. I know what you are all thinking, 3.5% of $266,000 is only $9,310. Why do I need to save the additional money?
Lesson 2 Other costs you need to be prepared for paying.
Besides your down payment you can expect to pay Closing Costs and Escrows. Closing costs are the costs associated with closing your loan. They include attorney fees, an appraisal fee, Lender fees, title insurance, recording charges with the state and banking or broker processing fees, among some others. When all is said and done your closing costs will total between $3000 on the low and $5,000 on the high. In many instances these costs can be financed or paid by the seller. Ask your Realtor or Mortgage Professional for further explanation.
Escrows are accounts your lender sets up to pay your home owners/hazard insurance and property taxes. Depending on when these payments are due, you should account for pre-paying 15 months of hazard insurance or roughly $1125 and 3 months of property taxes, $965.* *(Based on Framingham,MA 2010 tax rate of $14.52 and median home price $266,000)
So now you should see a clearer picture developing of how much money you will truly need to be a serious home shopper. A home priced at $266,000 will require a 3.5% down payment of $9310, average closing costs of $4000 and escrows of $2000.
Lesson 3 Contact a Realtor
What kind of home can I expect for $266,000 in Framingham,MA or the surrounding community? I recommend contacting a local Realtor and getting put on an email alert program. Email alerts is a program many Realtors provide to prospective new home buyers. This program sends email listings of new homes as they hit the market. You choose what listings you receive based on the search criteria you provide to the Realtor. For example, "All 3 bedroom homes in Framingham,MA and Natick,MA that are between $225k and $266k." You will then begin to see if the home you desire is available in your price range. If not, then you can adjust your sights accordingly. Start receiving email alerts now by checking out the Power of Two.
Lesson 4 Pre-Approvals.
OK, so you have a down payment and you are receiving email alerts from a Realtor, now what? It is time to get Pre-Approved. Pre-Approval is the process of determining the maximum loan you can expect a lender to give you. Before you can make any offer on a home you will need to be Pre-Approved for that offer amount. Many factors besides down payment, are considered in this process. Can you verify steady income? Do you have good credit? What are your monthly debts, i.e. credit card bills and car payments? I suggest contacting a Mortgage Professional and be prepared to answer these questions. He or she will also ask you to provide your prior 2 years W-2's; Copies of your Bank statements, where you have your down payment; One month's pay stubs/earnings statements; Social security number in order to pull a credit report; 2 years employment history; & 2 years prior living/renting history. After compiling this information he/she will be able to inform you what kind of interest rate is available and how much you can borrow. He or she will provide you a Pre-Approval letter which you will need in order to begin making offers.
In many instances I suggest you work with a Mortgage Professional beginning from lesson 1. The Mortgage professional will educate you about programs available such as the First Time Home Buyer Tax Credit. They will talk to you about the pros and cons of FHA loans and mortgage insurance. They can do a Pre-Qualification, similar to the Pre-Approval w/o all the documentation requirements, to help you get a feel for the price range of homes you can afford. If there are potential problems that can be fixed they can help you spot them and make suggestions to fix them. In short they can be the tool along the way to answer all of your questions and relieve all of your stress. And when it is time they can refer you to a Realtor and suggest an attorney for the Purchase and Sale. Not to mention when you do get to the Pre-Approval stage and it is time to turn over all your most important financial information; it will be much easier to do this with someone who has gained your trust over the past several months.
Lesson 5 Something to think about...
In closing I would like to point out one valuable person who I think is often times overlooked in the home buying cycle, the life insurance provider. For most of us our mortgage is the single greatest debt we will take on. If married, do your spouse a favor and at the minimum take out a term life insurance policy on each of you. If something were to happen to either of you, would you be able to handle the mortgage debt by yourself? If not, then contact an insurance provider.
Best of luck to all my First Time Home Buyers in Framingham MA! Happy House Hunting....
