The biggest hurdle that most of us need to overcome is how to save 10-20% to put down. Especially if it’s your first home and you don’t have a house to sell. This was the one thing that stopped us from buying a house for so long.
The down payment: The good news is that if you have good credit you can apply for a standard loan and first time homebuyers only need to put 3% down. Or if you don’t have perfect cedit you could apply for an FHA loan and put 3.5% down. On a $250,000 house that’s only $7500 for a standard loan and $8750 for an FHA loan.
How to get money: For some even that can be hard to come by. If you have a 401k then you can take out a loan against yourself and pay yourself back with interest. Or if you have an IRA you can withdraw $10,000 tax free for a first home purchase. If you’re married then you and your spouse can each take out $10,000 tax free from an IRA and that will give you a very nice down payment of $20,000.
Cash on hand: The down payment isn’t the only money that you will need up front. You will also need to consider the closing costs and earnest money. Earnest money was the thing we didn’t know about before it was time to fork it over so allow yourself easy access to about 1% of the purchase price of the house. You do get the earnest money back to put toward your down payment so consider it as part of your down payment when figuring out how much you’re going to put down but it is first written in the form of a check as insurance for the seller of the house. If you back out for no reason then they can claim your earnest money for “damages” in having the house off the market for a period of time.
Pre-approval: Shop for your mortgage before going out to seriously look at potential houses. You don’t want the house of your dreams to slip through your fingers because you have to wait for loan approval when another buyer may already be approved. Also a lot of agents may not want to bother showing you any houses until you are pre-approved so they know that they aren’t wasting their time. You can do this rather quickly now. We were pre-approved within 24 hours.
What if I change my mind? Depending on your state you may have several opportunities to get out of the contract prior to closing if things don’t live up to your expectations. Here in Colorado we had a lot of opportunities to get out if we wanted to. Find out what the rules are in your state.
Find a great agent: The most important thing is finding a great agent. We were seeing houses with a mother and daughter team as well as another agent to get a feel for which one would best suit our needs. We got incredibly lucky that the agent we chose was very knowledgable, available, and hands-on. The process was easier than we ever expected and we attribute this to having an excellent agent. He knew his stuff, spoke to us in simple terms, wasn’t shy about giving us honest feedback and the pros and cons of certain houses and neighborhoods, was thorough in explaining the process to us, and handled any bumps that may have happened along the way and took care of all of the dirty work. A wishy-washy agent is only going to make the process more stressful for you.