EDGEhomes Home Buyer Guide

Home Buyer Tips

Home ownership offers so many benefits, and there’s a lot to be said about having your own space and getting to make your own decorating decisions. But when it comes down to it, some of the most important benefits of owning a home are financial.

Have you dreamed of finally having a house of your own?

Not just a house, a home—a home with closet and storage space, freedom to decorate, and a yard in which you, your kids, and your pets can run free. Does that sound too good to be true? It’s not.

The transition from renting to buying can seem scary—even impossible. It’s tempting to jump at the first affordable house, but don’t give up hope finding your dream home. Here are some steps you can take to find a home that checks every item on your wishlist.

Locked Monthly Payments

While you can’t control rent payments, you do have the option of controlling your mortgage payments. Once you lock in a fixed-rate mortgage payment for your home, your affordable monthly rate won’t go up for your entire repayment period.

Avoid Paying for Remodels

When you build a home, all you see is brand-new. You won’t need to remodel right away or fix other people’s construction mistakes. If you don’t want to spend lots of time at the hardware store, buy a new home instead.

Build Equity

Instead of paying your landlord each month and essentially throwing money away, you could be paying yourself by owning a home. As the years go by, you gain equity as your home continues to gain value.

Saving for Your Dream Home

Buying a home is likely the biggest financial investment you’ll ever make.

As such, it requires much more financial forethought than buying a car or even planning a vacation. It’s a good idea to start saving for your down payment, mortgage payment, and closing costs as early as you can. The more money you can put down when buying a home, the better your interest rate will be and the lower your mortgage payment will be.

EDGEhomes Closing

There are many different items you will need to consider in your budget:

  • Your gross annual income
  • Outstanding debt (credit cards, car payments, student loans, etc.)
  • Monthly bills (utilities, food, insurance, etc.)
  • The home’s market value
  • Monthly mortgage payments
  • Homeowners insurance payments
  • Closing costs (title insurance, homeowners insurance, etc.)

Figure Out Your Down Payment

In the past, banks expected a 20-percent down payment in order to approve a home loan, especially for first time buyers who don’t have lengthy payment histories. However, there are multiple options available to first time buyers and repeat buyers alike.

It’s important to start saving for a down payment as soon as possible, as the amount you put down will determine several factors. A 5-percent down payment will open the door to good loan options, but you will also need mortgage insurance. With a 20-percent down payment, a mortgage insurance payment won’t be necessary.

Having a large down payment is not always required

There are many options out there for homebuyers who would prefer no-money-down options. If you meet certain guidelines, you may also qualify for a 0-percent down payment loan. A loan officer can help find the best loan program for your situation.

Know Your Credit Score

Your three-digit credit score makes a huge difference in the home buying process. Not only will it impact your interest rate, but it will also impact the mortgage loan you ultimately receive.

While preparing for your home purchase, make sure you know where your credit score stands. Pull your credit reports from all three major credit bureaus—Experian, Equifax, and TransUnion. All three calculate credit scores differently, but the reports should be fairly similar.

Closely examine your credit reports, looking for errors. If you see something you don’t recognize, you might want to dispute the mistake with the credit bureau itself. You’ll need to send them a letter and provide as much documentation as possible to prove that the error should be removed. Once it is, your credit score will most likely go up.

Home in Utah. EDGEhomes.

If your credit score isn’t where you’d like it to be, you do have options:

  • Increase credit limits on existing accounts
  • Always make payments on time
  • Keep your credit balances below 30 percent
  • Pay down outstanding debt
  • Apply for new credit only as needed

To learn more about credit scores and how your score is determined, take a look at this infographic.

If you are thinking about buying a home, it’s always a good idea to consult with a mortgage professional before making any major changes to your credit. They can help you understand what will and will not hurt your credit score, and what will make the most sense during the pre-qualification process.

Know What You Can Really Afford

Taking on any debt merits serious consideration—especially when buying a home. While you may be able to afford your down payment, mortgage payments, and HOA fees, years down the road you might feel differently. To really understand if you can afford your home in both the short term and long term, keep these things in mind:

Follow the 28/36 rule

Your monthly housing payments (mortgage, insurance, and taxes) should be 28 percent or less of your gross monthly income. Your debt-to-income ratio should be no more than 36 percent, including credit cards, student loans, car loans, and home loans.

Get pre-qualified

Apply for mortgage pre-qualification, where your lender will look at your financial history and current finances to determine how much loan you may qualify for.

Figure out what you absolutely need

Determine your “must-haves” for your new home, and identify areas for compromise. For example, it might be better to buy a house that’s in a great neighborhood versus one that has a backyard pool.

Finding the Best Mortgage Loan for Your Situation

Just as people are different, so are different loan types and individual needs.

There are many great options for home buyers:

  •  Traditional and conventional loans
  •  Federal Housing Administration (FHA) loans
  •  Utah Housing Authority loans
  •  VA and Rural Housing loans

Everything depends on your situation, down payment, credit, and more. Some communities also have grant programs to help people with things like down payments and closing costs. 

Conventional or Government-Backed Mortgage Loans

Today, mortgage lenders backed by the Federal Housing Administration, Department of Veterans Affairs, and Department of Agriculture offer low down-payment loans, which can even require no down payment. Another option is FHA-backed loans, which require as little as 3.5 percent down.

There are also options for first time buyers looking to lend from conventional lenders. Conventional loans also offer down payment programs specifically for first time buyers, where loans can be as low as 3 percent and even 0 percent. The only drawback is that you’ll typically pay a higher interest rate and monthly payment.

Fixed-Rate and Adjustable-Rate Mortgages

When you choose your mortgage loan, you will typically encounter two different options: fixed-rate and adjustable-rate (ARM) loans.

There is a big difference between the two: 

Fixed-rate mortgage

The rate of your loan stays the same over your period of repayment. The principal and interest portion of your payment will not change, but taxes and insurance are subject to change. A fixed-rate mortgage also comes with the peace of mind that your payment will not increase over the period of repayment.

Adjustable-rate mortgage

Your interest may go up or down over your period of repayment. Before you take out an ARM loan, make sure you know how much your monthly payments will go up or down with each adjustment, and if you will be able to afford the changes. These loans can be attractive because they often come with a lower interest rate.

Choose Your Mortgage Loan Period

Most mortgages offer 15-year and 30-year loan terms, but others offer 10-year and 20-year terms as well. So which one should you choose? Each one has its own pros and cons:

Shorter loan periods (10 and 15 years)

Pros: You’ll save a lot of money in interest since the term is so short.

You may  also have a lower mortgage rate, and more of your payment will go toward the principal balance, so you’ll own your home a lot quicker.

Cons: Your payments will be much higher than with a longer-term mortgage.

Since the payments are so high, you might not qualify for a more expensive home. It can also be easy to fall into financial hardship if your income drops over the years. And with 10-year ARM loans, your rate could become higher.

Longer loan periods (20 and 30 years)

Pros: Your monthly payment will be low, and if you choose a fixed rate, it will remain that low for the entire period of repayment.

And since your payments are low, you may be able to qualify for a more expensive home.

Cons: You pay more in interest than you would with a shorter loan period.

And since the length of repayment is longer, you might be charged higher interest rates. Home buyers could also be tempted to over-borrow to buy homes that are too expensive because their monthly payments seem affordable in the short term.

Mortgage Calculator

Get Pre-Qualified

Once you have reviewed your finances and what you can afford, determine how much you can invest in a home and stick to that limit. Pre-qualifying for a mortgage demonstrates to you, your realtor, and sellers that you are qualified and can afford a house. In the case of multiple offers, sellers look for those who are pre-qualified rather than those who aren’t to close the deal.

Documents to include in your mortgage application:

  • W-2 forms from the past two years
  • Pay stubs from the past 30 days
  • Proof of other income sources
  • Federal tax returns from the past two years
  • Recent bank statements
  • Information about long-term debts like student loans
  • Identification card and Social Security number

Home Shopping Tips

Once all your finances are squared away, you’re ready for the most exciting part: shopping around for a home! In this step, your EDGEhomes real estate agent will help you find a home you love. 

Find an EDGEhomes Real Estate Agent

Your real estate agent should have everything you’re looking for to help you navigate the home-buying process. The EDGEhomes real estate agents understand your needs and are determined to help you find your dream home. Once you’ve found your EDGEhomes agent, the fun part of finding the home you’ve been dreaming of can begin.

Finding the Right House

You’ve saved hard, done hours of research, and found the perfect realtor. Now’s your time to find a house that fits all your specifications. From number of bedrooms to yard size to floor plans to neighborhood, there are an almost endless amount of home features you’ll need to consider. It can become overwhelming, but you’re the only one who will know if a home is perfect for you.

Location, location, location

You need to love your home’s location just as much as the house itself. Take a look at the neighborhood and drive by at different times of day so you get a real feel for the location. Find out what school boundaries you fall within and  how close the stores are. If these things are not important to you right now, they most likely will be in the future, so it’s worth considering, just in case.

Take advice from your agent

If you have questions about buying a home, your best course of action is talking to your EDGEhomes real estate agent. Our agents have the extensive experience to help you find the best homes in your area. Once they know what you’d like in a home, they’ll keep an eye out for homes that meet your specifications. They can also help you find the best options for your budget.

Be patient

With the many houses on the market, it may seem like finding a home should be a quick process. But like they say, you can’t rush perfection. Don’t risk securing an unsuitable home just because it takes less time. Instead, work with your agent to find an EDGEhomes property that truly feels like home.

Personalize your space

The great thing about buying your home is customizing every inch of your new space. From brainstorming color palettes to selecting your ideal floor plan, designing your space is sometimes half the fun of homeownership. With your decorations and personal tastes, you’ll love your new home for years to come.

Writing a Purchase Agreement

You’ve worked with your EDGEhomes agent to find your ideal home, and you’re so close to finally becoming a homeowner! Now’s the time to submit an offer. When writing and submitting a purchase agreement, time is of the essence. You might be facing competition from others who also want to buy the house, so make sure you work with your EDGEhomes agent to submit your purchase agreement quickly.

What to Expect with Closing Costs

You don’t want to get this far in the process only to realize that you haven’t saved for closing costs, but don’t let these costs scare you out of securing your dream home! Work with your mortgage professional to explore all closing cost options available to you.

Becoming educated on this part of the home buying process in particular is a great way to overcome the stress often associated with it. Know that your cost will usually range from two to five percent of the home purchase price, and can be divided into two sections: 

Basic closing costs

All mortgage lenders will include fees for loan processing and underwriting, home appraisals, title settlements, and insurance.

Origination fees

These are typically used to buy the interest rate down and will vary depending on the lender.

As you are looking for a home loan and apply with a particular lender, the lender is required to give you a Loan Estimate within 3 days of your application. The Loan Estimate will show the terms of your loan, payment, and estimates of what closing costs will be on your particular loan so you know what to plan for before closing on your home.

If you are purchasing your home in an area with an HOA, transfer fees and prepaid dues may be collected as part of your total closing costs. Your mortgage professional can help you understand the fees and respective benefits associated with your new community.

This is the time to determine whether it makes the most sense for you to pay more upfront in closing costs for a lower interest rate. In most cases it is actually better to take the higher interest rate with lower closing costs as few people keep their loan for more than five years.

Prior to your home closing, you should receive a closing disclosure document that contains the final numbers of both your loan payment and your closing costs. Before you sign it, be sure that the costs closely align with your original loan estimate.

Congratulations—You’re a Homeowner!

Once you’ve got your new house keys in your hands, it starts feeling real—You’re a homeowner! From here, the customer service team at EDGEhomes will make sure you feel comfortable in your new home. A customer service representative will even walk you through your home to ensure you understand which home repairs are your responsibility, and that you know which items are covered by EDGEhomes’ warranties.

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Once you feel comfortable in your new place and move your things in, you’ll finally have the home of your dreams!

To learn more helpful home buyer tips, turn to EDGEhomes. With many years of designing and building experience, EDGEhomes is the leader among Utah home builders. Contact us to see how we can help you along the home buying process.