Everything you need to know about buying a home
Summer, we can see you right around the corner! The beginning of May looked more like April was mad at us, but as long as Mother Nature keeps this weather up, we can be friends again.
Speaking of summer, SCHOOL IS OUT! That means we get to welcome our new intern, Megan, to our crew! Megan is going into her junior year at Auburn University, majoring in communications and marketing. She has very little knowledge of the home buying process (she is 20, afterall!) What better way to spill some tea on some questions her and her friends had about buying a home?
Here is a list of their questions, and answers from Jenn and Lauren, co-owners of the LKW Home Team, Keller Williams Classic Properties. If you have your own questions, send them our way! If one person has the question, there are likely many others wondering the same! Slide in our DMs @welcomehome614 and @lkwhometeam_lauren, email us at [email protected], or call/text us at 614-321-9262. There is no such thing as a dumb questions when it comes to the largest purchase of your life. LKW Home Team has your back!
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1. Everyone says “education is key,” yet how do I get a key to own a home when I have so much student loan debt?
L: Ohh, student loan debt. The worst “S” word there is! I am right there with you. Student loan debt is absolutely taken into effect when determining your DTI (debt to income ratio). College graduates bogged down with large monthly payments do have options! The traditional route of purchasing a home for you to live it may be difficult if your DTI is over 40%. BUT, hear me out. In Columbus, you’re going to be spending $1,000+ a month on rent, which is building your landlord equity. What if you started off small with a cheap home that is within your budget, and lived there for a year or two? You could get roomates to help with rent, making it easier for you to pay off those loans with your passive income.
In two or three years, you’d be ready for an upgrade. By then, you will have built equity for yourself, and could use the proceeds to purchase your next home. You couldr even keep that first home as rental for passive income for years to come!
(Pro-tip: That’s what I did. My first home I bought $50k under budget, and had three bedrooms full of friends who paid my mortgage for me! I lived for free, minus utilities, and made $30k in two years once I sold my place. With my cost of living and my equity, the sacrifice made me $50k in two years.)
If you aren’t sold on having roommates, you can do the same with a duplex and live alone on one side and have the other side pay your mortgage with their rent payment. Kills two birds with one stone!
J: Megan, great question! Student Loan debt is in fact accounted for when purchasing a home. There are programs that only charge 1% of your student loan debt and as low as .5% of your student loan debt. The Buyer would request an income-based repayment plan letter from their student loan servicer and provide that to their lender. Keep in mind, this approval process is based off of your credit score and debt-to-income ratio, so while it is an option that you should definitely check out, it does not apply to everyone. So I hope you have been paying down that TJ Maxx card, girlfriend!
2. Do you have to use your first-time home buyer discount on the first purchase you buy, or can I wait to use it at a later date?
L: The short answer—no. The mind-blowing answer? You can be a first-time buyer more than once! So technically, anyone who has not owned a home in the past three years is a FTHB (First Time Home Buyer). Pretty, sweet, huh? So, you want an awesome life hack to build wealth quickly? You and your partner want to buy a home. Together, you qualify for $350,000 (which really means $375,000 or more in this market, honestly). Instead of putting all of your eggs in one basket, whoever has the better credit score, purchase on your own!. Sure, maybe you only afford $175,000 or so, but watch this. You purchase the starter home and suck it up for 2-3 years knowing that you are going to be rolling in cash in about 10 years. Stockpile the difference in monthly payments to either pay down loans/debts, or just add to that savings account. Then, in 2-3 years once you’ve paid off some loans, maybe earned a raise, increased your credit score.. BOOM. You sell that home, and use the equity you’ve gained plus the savings you’ve stashed, and then the other partner purchases the next home (alone, again qualifying you for FTHB programs). Again, you’re purchasing on one salary, so well below your means. Stash the cash again for another 3-4 years, and do it all over again! At that point, the first person is all of the sudden a FTHB again, or maybe you’ve both grown your careers and don’t need the FTHB programs. Better yet, you could have two rentals in your portfolio making you passive income. Can you say passive income in an appreciating market? #financialfreedom
J: If you have a low to moderate income or have not owned a home in the last 3 years you are considered a first time home buyer. The Ohio Housing Finance Agency, also known as OFHA, can help with down payment assistance, as well as tax credits. IMO.. I would definitely utilize any tax credits available on your first home, hoping that as you outgrow your first home your income grows, meaning you will not need the assistance as much as you would have initially. The government is updating grant programs regularly, so be sure to ask your Real Estate Agent and their Preferred Lender what options you may have.
3. What is the No. 1 biggest mistake people my age (20s-early 30s) make when trying to either rent or buy their first home?
L: The biggest mistake 20- 30-year-olds make is not educating themselves, and the second biggest mistake is renting and paying their landlords’ mortgage for them. Let’s break it down here. If you are renting for $1,000 a month (low in Columbus market) for an entire decade (20-30 years old) you are paying $120,000 toward making your landlord rich. ONE HUNDRED AND TWENTY THOUSAND DOLLARS. Pshh, you could have paid off your student loans a time or four at that point! Why not use what you can to purchase a house you may not love? You’d at least be building wealth, gaining appreciation, and setting yourself up for success and financial freedom. #totallyworthit (By the way, your new starter home that isn’t perfect is likely in better condition than the apartment you would be renting anyways.Trust me #lessonlearned)
J: Megan, I am so glad you asked! New buyers have a tendency to pick their own lender. This can be brutally detrimental to both getting your offer accepted and the ease and knowledge of the home buying process. I have personally seen numerous deals go south due to poor lender communication or mortgage lenders who over promise and under deliver. Ask your trusted Realtors (hopefully that’s the LKW Home Team) for their preferred lender. Your Agent knows which mortgage companies are trustworthy and will prove to be reputable to the seller’s Agent. We also know the lenders who can get to the closing table and make our Buyers feel comfortable and confident every step of the way!
4. How much money do I need to save for a down payment on a home?
L: You can borrow money for a mortgage as low as 3% down, with good credit. You will also have closing costs of $3,500 dollars or so, but keep in mind, those aren’t all fees! Your down payment makes your monthly payment lower. The closing costs help start an escrow account on your behalf. That means most of the funds that you are paying towards closing costs are actually your money that will be used in the future: You’re just paying it up front. The Escrow Account will be started by your lender, and that is the account that your future tax bill and homeowners insurance will be paid out of. So while you might have sticker shock, know that the majority of those costs is YOUR money you will use in the future. Of course, there is a loan origination fee, survey fee, appraisal fee, and title fees. But a large chunk of these funds are just set aside for you to use in the future!
J: The best part of the current market is the rates to borrow money on. While we hear from many first time buyers who are terrified to enter this market, we also rebut with the fact that money is so cheap to borrow right now. With the rates being so low, as a buyer we would recommend putting 3.5% of your home purchase down. This gives you the opportunity to free up more cash money for appraisal gap coverage and home repairs as needed. Don’t forget when thinking about buying, a Real Estate Agent charges no commission to our buyers. The sellers pay the Agent’s commission. Many first timehome buyers are not aware of that fact.
5. With so many realtors working on the market, how do I pick the best one to fit my needs? What are things to look out for or red flags when meeting with realtors?
L: First of all, in this market, you want a full-time Agent who is in the market every single day. There are over 9,000 Agents in Central Ohio, and only about 20% of them are more than a “hobby agent” who only sells one or two homes per year. In our biased opinion, you want an Agent who is on a team, as the market is moving quickly and we need to get our clients in to see homes ASAP. A team has the manpower to have multiple people available to open the door for you, while your Agent takes on negotiations and guides you through the home buying process. Aside from that, you want an Agent who will educate you on the front end of the process, so you feel comfortable making quick decisions. You’ll feel like your Agent is advocating for you, and that (along with all that up-front education) will help you feel comfortable putting offers in quickly, since you’ll already understand what your offer needs to be. An Agent who educates you upfront can save you a TON of time and heartache. A good Agent will be honest and transparent with you if you just aren’t quite ready to buy. They’re busy, and they’ll recognize you are, too. They’ll want to ensure no one is wasting their time.
J: PREACH! There are over 9,000 Agents in the Columbus Board of Realtors. I have served as many buyers’ Second Realtor The largest hardship that these Buyers have had are lack of knowledge from their Agents and lack of timeliness. There is no time for the tortoise in this market. As an Agent you need to be the hare! Your Realtor should conduct a home buyer seminar with you. Most are done via Zoom these days. This seminar will represent what to expect when the Buyer(s) find a home they love, what the terms of the contract mean, what the contingencies of the contract are, and how the process works. If your Agent has not provided you that, you run the risk of wasting lots of gas and mileage during your housing search. At LKW Home Team, our members pride ourselves in fully educating our Buyers and offering options to “Think Outside The House” (our motto) when obtaining funds for appraisal gap coverage and winning offers in a highly competitive market.
6. I am afraid I do not have the credit score required to get a loan. What should I do?
L: Credit score is not only crucial in qualifying for obtaining a mortgage, but it is also extremely important to get your credit score as high as possible before purchasing your first home so you have the best interest rate you possibly can. In most cases, every 50 points on your credit score is “tiered”. Meaning, a score of 640 and 660 could save you tens of thousands of dollars over the life of your mortgage loan. The LKW Home Team has crafted a “Home Buyers Guide” to help you figure out what you should be doing 12 months, nine months, six months, etc., before actually house hunting. Reach out to us at [email protected] to get your copy!
J: Hey, no worries, that’s where we come in. It doesn’t hurt to ask, amiright! After we connect you with our preferred lenders, LKW Home Team provides you with a breakdown of what to do to increase your credit score. We have plans for how you should prepare for 12 months, six months and three months before your house search that we provide as a guideline to ensure you are ready to buy and making all the right moves, credit wise.
7. What is the No. 1 reason why people sell or rent their homes to begin with?L+J (because our answers were almost verbatim!): The No. 1 reason people sell their home is because they are going through a life change: Marriage, building a family, divorce, becoming an empty nester, job relocation, and death are the top reasons why sellers sell their home. Aside from that, investors who are looking to use their equity in other projects, relocation companies who no longer have a need to own the property, and change in job/income could all be reasons as well.
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