Kevin Seawright Has 5 Things First Time Home Buyers Need To Know Before Signing Off On Their First Property
Buying your first home can be an exciting — and often, overwhelming — experience. The journey of searching for a new place in the perfect neighborhood that fits your budget and compliments your lifestyle is fun. But, finding the best lender for you and navigating the mortgage application process is challenging for many.
These five tips From Kevin Seawright, experienced real estate asset manager and investor, will help you prepare for finding your first home and ensure you negotiate mortgage rates and terms like a seasoned professional.
Let’s get started with the basics, understanding your credit score.
Number One: Know Your Credit Score
To get a great interest rate on any loan, and create fruitful competition from lenders, you need to know how lenders view your score.
First, it is important to realize that different types of lenders use different formulas and requirements to determine loan eligibility. Mortgage lenders use a special credit scoring formula that has more stringent requirements and scoring factors than retail creditors, auto lenders, and credit card companies. There is a good reason they are so finicky about who they approve of. Depending on where you live in the United States, the typical mortgage a lender funds could be as low as $100,000 or more than $1 million. At $354,500, the average mortgage in the United States reached an all-time high in 2019.
When you’re talking about that kind of money, naturally banks and mortgage specialists want to be absolutely certain their clients can pay back their mortgage. They use a unique combination of income to debt ratio, total current debt, past payment patterns, length and type of employment, and other factors when considering approving a mortgage loan for a first-time homebuyer.
According to the National Association of Realtors (NAR) Q3 2019 Metropolitan Median Area Prices and Affordability report, median home selling prices in the major metropolitan areas of Maryland ranged from $105,300 to $439,800. Prices have increased this year. In the NAR Q2 2020 report, median home prices were reported to be between $123,300 and $472,100.
Bonus tip: Talk to prospective lenders about your modified mortgage credit score and ask for suggestions on ways you can improve your score to qualify for better rates. Earning a lower rate could save you thousands of dollars over the course of a 30-year mortgage.
Number Two: Chose the Best Real Estate Agent for Your Needs
Remember that choosing a real estate agent (or agents) should be a business decision. You may have friends or family members who are licensed agents, and you may really want to support them, but the number one reason to chose an agent is that he or she is loyal to you.
Buying a home is the largest financial investment most people make in their life, and you don’t want to risk making an uninformed decision or choose an agent just to help them get ahead in a new career. It is wise to interview several agents before signing an exclusive contract, or making a commitment to work with only one brokerage firm.
When interviewing prospective agents, ask for references from former and current clients. Also, check out online reviews, but remember one bad review does not mean an automatic refection. Studies show people are more likely to report a bad experience than a good one!
According to Review Trackers, “Negative reviews drive away customers. . . negative reviews have convinced 94 percent of consumers to avoid a business.” While negative reviews can be cause for concern, it is better to consider if the negative reviews are recent or from several years ago and if there are more negative reviews than positive comments. Sometimes, an organization may go through growing pains or other circumstances that cause their customer service to decline temporarily. So, read reviews, but consider the context as well as the content.
Another good indication of an agent’s motivation is the number of sales the agent closes each year. NAR research shows the national median transactions is 12. Twelve or more would demonstrate at least a good record, more would be better of course. Also, you’ll want to know how many buyers the brokerage represents each year.
A truly loyal advocate for first-time homebuyers will know about programs and incentives that provide assistance for everything from down payment relief to tax breaks for upgrades that enhance energy efficiency. There are grants and low-interest loan programs in every state. According to the Mortgage Reports, “Home buyers using down payment assistance save over $17,000 on average.” Motivated agents invest their time and money staying informed about trends and industry changes so they can help their clients get the best deal, whether that deal is buying, selling, or getting a great mortgage rate.
Bonus tip: For more tips on interviewing real estate representatives, check out the NAR Quick Stats page, where you’ll find helpful information and stats to guide your interviews.
Number Three: Always Buy Less Than Your Pre-Approval Mortgage Amount
There are many agents, and a few experts, recommend you buy the most expensive home that you can afford. But, remember, homeownership comes with the responsibility to pay for all repairs and upgrades to your property.
If you are overextended on your mortgage and a major problem develops, like the sewer line needs replacing or the HVAC system ages out, you should have enough money in a rainy day fund to cover the costs. Without a cushion set aside, you may have trouble paying your mortgage and that can have a trickle-down effect that quickly spirals out of control.
Josh Altman, a real estate investor who became a millionaire before he was 30 firmly believes it is better to buy the cheapest house on a block than the most expensive.
In a piece he wrote for CNBC he explained why. He said, “There are no “secrets” when it comes to homebuying. But unless you’re super wealthy and have millions in the bank, buying the cheapest house on the best block (in the best neighborhood) is a smart decision. Most buyers avoid this, but when you think differently from everyone else, you can get significantly higher returns.”
Another piece of advice Altman gives to first-time homebuyers is to remember that you can “Remodel the interiors, change the exterior facade, paint it a different color, update the landscaping and so on. But the one thing you can’t do is change the location.” So, choose your location wisely, and stash some cash in a savings account so you can change all the things you don’t love about your new place.
Number Four: Purchase a Home Warranty Package
Even if you have planned for major repairs and unforeseen circumstances, when you buy your first home, you must make sure you have a good warranty product. These plans are essential to navigating the homeownership journey successfully without stress or having to run up credit card debt to keep your property in excellent condition.
Many plans start as low as $500, depending on the company and type of coverage you choose. Your mortgage lender, professional appraiser, or real estate agent may be able to recommend a reputable home warranty company. You can also read the Consumersadvocate.org online review of plans underwritten by national warranty companies. But, remember the ConsumersAdvocate organization may receive compensation for these reviews, and it is important to check the BBB ratings and review sites for confirmation of all positive recommendations regardless of the source.
Bonus tip: Purchase a plan that covers appliances and electronics, as well as disposal of any non-working equipment replaced. Plus, coverage should include issues related to improper installation, normal aging such as rust and corrosion due to local climate and all systems (air conditioners, water filtration, solar, etc.)
Number Five: Make Home Buying an Enjoyable Experience
The better prepared you are, the more enjoyable the process will be. This is an exciting time and you should have some fun. Reducing stress and relaxing will help you enjoy the road to buying your first home. Maybe you can spend every weekend tour homes within your target range. If you absolutely want a commute that is less than 45 minutes, get a map and create a circle that encompasses all the neighborhoods in the range.
You can also spend time browsing paint chips, fabric for curtains and accent pillow, flooring options, and other home accessories you may purchase to make your house a home. Visit brick-and-mortar and online retailers. Consider talking to an interior design (or several) who can help you choose colors, textures, and artwork that will reflect your personality. Envision what you want your future home to look like, including interior and exterior spaces. By focusing on the finer details, you’ll find the tasks of finding a real estate agent, mortgage lender, and neighborhood less stressful and more pleasurable. Plus, when the time comes to start “fixing up” your home in preparation for moving day, you’ll already know exactly what furnishings, appliances, plants and shrubs, and accents you need to order.
Having fun along the way will ensure your first-time home buying journey is filled with pleasant memories of lessons learned and accomplishments achieved you never thought possible.
About Kevin Seawright
Kevin Seawright is the founder of RPS Solutions LLC, a company that provides specialized real estate management services including asset acquisition and liquidation, government contracting, commercial and residential development, and creating wealth and stabilization for neighborhoods.
He is an experienced financial operations administrator and has many personal connections that allow him to assist first-time homebuyers to secure financing, down payment assistance, and rehabilitation funding.
Kevin’s vision includes elevating experiences for first-time homebuyers by helping them navigate the journey from finding properties that meet their budgets to rehabilitating run-down homes to create beautiful, safe, comfortable living spaces for a more secure future.