First Time Home Buyer Class

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First Time Home Buyer In St Louis

This is a great place to start!

 

As a first time home buyer in St Louis you probably have a ton of questions. How do I start? What should I know? How much can I afford? Do I really need a real estate agent, if so, when?

Those are all great questions. I am happy to answer those questions either in person over coffee, over the phone, via email…or feel free to just read on and see what you discover.

Being a first time home buyer in St Louis city also has its own uniqueness. There are many different neighborhoods in the city, each with its own personality and price ranges. I have had many clients that loved where they were currently renting, but couldn’t afford a house in that specific neighborhood. One of the most important things to remember as a first time home buyer in st louis is to keep an open mind. There are probably a few neighborhoods that would be a good match and will serve you well.

There are certainly pros and cons to renting and buying. But once you have idea that you are ready to buy, then it’s time to start assembling your team. Your two main points of contact that will take you from start to finish are your lender and your real estate agent.

If you have a lender, or someone that you want to use, go ahead and contact them. The next point of contact will be a real estate agent to help set up a search and guide you through the process. The agent can also be a great point of contact if you don’t have a lender in mind, most agents have a couple lenders they can refer you to.

Next, read through the most common questions when starting the process. Trust me, you will have a ton of other questions as you go through the process and any good agent will take the time to explain everything. These are just the questions to get you started.

Rent vs. Owning

Yep, big decision. It’s also a great one to determine if you can start building your financial portfolio by owning a home or if you need to hold off for awhile. Let’s figure it out:

Renting might be better for you right now if…

  • you aren’t sure you are going to be here in St Louis for the next few years because of life circumstances, job changes, etc. I would say that you want to be here for at least the next 3 years or more.
  • you don’t have any money saved up for a down payment. No worries if you don’t have a ton of money saved, all you need is 3%-5% for a down payment for many loans.
  • you are not willing or have no desire to handle home maintenance, issues and/or repairs that are needed or may come up.
  • you are new to a city and have no idea where you want to live. The upside to renting is you get to “try out” an area before you invest in that neighborhood. Conversely, if you want to be in a specific area, but the housing in that area is sky high, then renting might be best option.
  • you just don’t want the responsibility that comes with owning a home. (Hay, I get it!)
  • you have bad credit, loads of debt, etc. It’s probably best to pay down some debt and get your credit in order. But this is still a great time to talk to a lender, they can better guide you to let you know what debt to pay off/down that will help you the most. A lender can also give you some direction on repairing your credit. So it’s NEVER too early to talk to a lender to find out what you have to do to get yourself to a point where you can buy a house.

Buying might be right for you if…

  • you have some money saved up for the home buying process.
  • make enough money for your mortgage payment and are willing to save a little money for any home maintenance or home repairs that are needed.
  • ready to take on the responsibility of owning a home and you want that pride of ownership.
  • you have an idea of a general area you want to live.

Remember, just because you are ready to own a home, you still need to make sure you qualify for a loan.

If you would like some references for lenders, please email me at shannon@livingtowergrove.com. I’ll send you a current list!

I'm not sure how much I can even afford

Not sure how much you can afford? The estimates below will give you a VERY GENERAL ROUGH ESTIMATE of what you can afford. There are a few factors that will change these numbers, but this is at least a good place to start.

If you can afford $600/month = Then you are looking at a house around the $90,000 price point range.

$700/month = $100,000 price point range

$800/month = $125,000 price point range

$900/month = $140,000 price point range

$1,000/month = $150,000 price point range

*The above figures are estimates and include estimated monthly taxes and insurance. The estimates include a minimum down payment of 3%. The above numbers do not take into account other factors that could affect loan approval such as credit score, debt-to-income ratio, etc.

I'm interested in buying a house, but what is the best place to start?

Your first two contact once you get serious about the home buying process are going to be to a mortgage lender and a real estate agent.

You can always start with a real estate agent for a couple of different reasons:

  1. An agent can get you set up on the MLS (Multiple Listing Service, this is the system all agents use to input listings. This is the system that all other sites pull from like Zillow and Realtor.com. So it is always the most accurate and up to date information.). This is a great place to start because you can start to see what homes in your price point have to offer and what you can get for your money in different areas. This is a great way to start to hone in on the area that is right for you and your budget.
  2. A real estate agent will have several mortgage lender contacts. My personal advise is to start with your bank and/or a credit union. Contact your bank and ask about their mortgage programs and get pre-qualified. Getting pre-qualified is essential to know how much a bank will lend you. Just because you can afford $1,000/month for housing doesn’t mean that you will be approved for a $150,000 house. So getting this pre-qualification will help set your expectations so you don’t waist your time looking for houses out of your price point. Remember, just because you start the process at your bank doesn’t mean that you are obligated to use them. This is just a starting point. This is a huge purchase, you should shop around when it comes to mortgages, not everyone offers the same thing. This is where your agent can be an invaluable resource!

The key is to just start the process. A great real estate agent will help guide you through the entire process, so just get in touch with one and get on the path to homeownership!

How much money do I need to buy a house?

The most common question! And really, there is no one answer. It will vary for everyone. However, here are the things you will possibly need money for when buying a house here in St Louis:

  1. Down payment – There are a few programs out there that help with down payment assistance. Talk to your lender and/or real estate agent about this option. Otherwise you are looking at about a 3%-5% minimum down payment. So if you buying a $100,000 house you will need $3,000 – $5,000 for the down payment, depending on the type of loan you get.
  2. Earnest Money – Earnest money is money you put down on a house when you make an offer. It’s like your ‘good faith’ money. This money is held by a title company and is used toward your final closing costs/ down payment. This is NOT an expense, but rather part of your down payment that is needed when you put an offer on a house. Usually your earnest money is about 1% of the purchase price.
  3. Inspections – When buying a house you will hire a home inspector to go through the house and do an inspection to help you determine the overall condition of the property. There are several types of inspections that you can do, but the most common are the building (general) inspection, sewer inspection, radon and termite. Plan on about $700- $1,000 for inspections, depending on which ones you have done. Inspection fees are paid at the time of inspections.
  4. Title Fees – You will pay a title company to do a title search to make sure the house you are buying has a clear title and that there are no liens on the property. The title fees are usually around $1300. You will pay this at closing.
  5. Survey Fee – If you have a survey done of the property and depending on what kind of survey you have done this fee can be about $150-$400. The survey is optional, but talk to your agent about this option.
  6. Lender Fees – These vary greatly depending on who you use. Lender fees can vary from $800 – $1500 or more. You don’t have to pay these fees until closing. Some banks and credit unions will even offer no fees, so again, a great reason to shop around.
  7. Appraisal Fee – when you buy a house you will have an appraisal done to ensure that the house will appraise for what you are paying. The lender requires this to ensure the house is worth what you are paying for the house. The appraisal usually runs about $400. This fee is paid at closing.
  8. Agent Fees – A lot of agents have fees, anywhere from $250 – $1200, or more. Make sure you talk to your agent about what they charge. This fee is paid at closing.
  9. Prepaids – Your mortgage company will require you to have a minimum amount of money in an escrow account. The escrow account is the account that your mortgage company uses to hold money that will pay your property taxes and insurance premiums (like homeowners insurance, mortgage insurance and/ or flood insurance) when they are due. You are required to have a minimum amount in this account at all times. So at closing you will be required to deposit money into this account. (see FAQ: What is included in a mortgage payment below). The minimum amount can vary depending on the lender. Figure a minimum of about 3 months worth of prepaids.
    • For example- if your yearly property taxes were $1200 (/12=$100) + homeowners insurance at $1000/year (/12= $84) +mortgage insurance at $150/month = your monthly escrow payment would be about $334 x 3 months = $1,002

All in all you are looking at about $4,000-$5,000 potentially in fees for buying a house above and beyond what you need for your down payment.

HOWEVER – with all this said, there are ways to get help with these fees. For example, when you make an offer on a house you can request that the seller pay some of these fees. This makes it so you have to come up with less money. Talk to an agent about this strategy.

There may also be mortgage programs that allow you to wrap some of these fees into your mortgage so you don’t have to come to the table with as much money.

The bottom line is that there are so many variables when it comes to buying a house that there is no one absolute number. It will vary depending on the lender you use and which mortgage program you choose…

The ONLY way to know  what you will qualify for and how much money you will have to come up with for down payment and closing costs is to talk to a lender.

How do I choose a real estate agent?

Awesome question. You will be spending a lot of time with this person, so while it’s always a bit nice to actually like the agent, the most important thing about the agent is that they will be there for you, take the time to explain the process, be available to answer your questions and ensure a smooth process (or as smooth as possible). Not every agent is going to deliver the same service.

It’s OK to chat with a few agents to get an idea of their personality and if you mesh with them. You also want to make sure they are familiar with the area that you are looking to buy! You may also want to know if the agent is full time or part time. If you go with a part time agent you may have to work around the agents other work schedul.  Part time agents  may be limited on when they are able to communicate with you because of other obligations. A full time agent is usually a little more dedicated to this job and has the flexibility and ability to respond to your needs better. However, if you find an agent that you really like that happens to do this part time, then go with it. If it’s not working out you can always find another agent.

Some agents will have you sign a buyer’s agreement. This agreement basically states that you can not use any other agent and contractually binds you to work with them.

Here are a couple things to know about the agreement:

  1. Even if you sign this agreement, you can fire your agent anytime and without cause. IF, you do sign something and want to use another agent, please let the other agent know this before you start looking at houses. You can sign a new agreement with the new agent and it will void the other agreement.
  2. If you start working with an agent, then it’s just customary and respectable to work with that one agent. Even if you don’t sign any agreement, we all pull from the same system, we all send you the same thing/information/listings. What makes each agent different is the level of service provided to you, the client. So just stick with the one agent unless it’s not working out, then move on!
  3. If an agent charges a fee, the fee will be stated on this agreement. It is ok to ask an agent upfront if they charge a fee. The fee they charge can range from $250 – $1,000. Most agent fees are paid only if you buy a house at closing and this fee is added to your closing costs. There are agents that do not have any fees.
  4. Most agents will have a minimum commission and this will be stated on this agreement as well. This minimum commission is almost never an issue and not normally something that you have to worry about. But it worth noting just so that you understand any fees that may be involved. Let’s be honest, agents can’t work for free. Sellers normally pay all commissions to the agents involved, including your agent. So normally you don’t have to worry about paying any commissions what-so-ever. However, there are times when sellers are paying far below industry standard.
    • For example, let’s say your agent has a minimum commission of 2.5% as stated on the agreement. If you go to look at a $100,000 house and the commission being offered to the buyer’s agent (your agent) is only 2.3% then, per the agreement, you are responsible for the other .2% which would equal $200.
    • How will you know if the house you want to see is paying the buyer’s agent minimum? Just ask the agent to let you know when a house you want to see falls below their minimum.
    • If there is a house that you are interested in seeing that has a commission below the agent’s minimum requirement, then have the agent send an agreement to the other agent prior to seeing the house that gets the sellers to agree to your agent’s full minimum commission. This can be done so that you aren’t stuck paying the difference. If the seller’s don’t agree, then you need to decide if that house is worth the extra money if you decide to buy it.

Things to know about me:

  • I don’t usually make clients sign an agreement upfront. I have no problem continually working for my buyers and continually earning your business. Plus I don’t want anyone to feel like they are stuck with me – that’s no fun.
  • I don’t currently have any fee’s, but if you end up being one of those really crazy clients, then I might add a fee or two! (just kidding this has never happened…yet anyway)
  • I do have a minimum commission, but that is because I don’t work for free. I’m not the United Nations, I’m not a non-profit, I have a mortgage and bills to pay too. BUT no worries, my minimum commission is below the average industry standard that sellers pay so you should never have an issue. FYI-  I have never had this issue come up with any of my buyer’s and none of my buyers have ever had to pay any commissions. And honestly if this were to come up, then I’d be more than happy to work with you if the seller’s are unwilling to pay the minimum commission.

How do I choose a lender?

Not all things are equal when it comes to getting a mortgage.

The first place I would recommend you start is with any lender to get the ball rolling. Ask friends that have bought a house for a referral, or call an agent. Otherwise, just start with your bank or credit union. Call them up and ask for the residential mortgage department.

Just a piece of information – if you get turned down for a mortgage at your bank, you still may have options. See below.

What is the difference between a bank, credit union and a mortgage broker?

Banks and Credit Unions:

  • Depending on the bank – the biggest thing to consider is if they are a large national institution or a more regional bank. This can make a big difference in the loan process. I usually suggest using a bank or credit union that is regional vs a large national brand or a lender that is internet based.
  • They tend to have limited loan programs that they can offer you, however the loan programs that they do have could best benefit you.
  • Because most banks and credit unions have stronger ties to the communities they may have a loan program that are designed specifically for certain types of industries. There are some banks/ credit unions that have programs for doctors and nurses or teachers, others might have programs for civil service workers. This is where is might be good to talk to an agent and ask them if they know of a bank or institution that offers a loan program for your type of industry.
  • They may have higher qualifications in order to get a loan, for example, higher credit scores, lower debt-to-income ratio, etc.
  • They may be able to better service you during the loan process and provide a more personal touch.
  • Usually have lower lender fees.

Mortgage Broker:

  • Acts more like a middleman.
  • They have access to hundreds of loan program from all kinds of lenders and may be able to find something that best fits your situation.
  • Can usually find a loan program even if you have been turned down by a bank or credit union. Because they have access to many different loan program from different lending institutions they may be able to find you a mortgage program even if you have lower credit scores.
  • Can sometime find you a more favorable loan rate.
  • Can you really save you time when is comes to shopping around for a loan program that fits your needs.
  • Usually have higher fees than a bank or credit union.

 

The key is to ask questions. Ask about loan programs, ask about fees, ask them what you need to know and then get it writing. You can also discuss different lenders with your agent. They will typically have some insight and information, along with some referrals for the best service from beginning to end!

Why contact a lender if I'm not really ready to buy right now, can I just look?

There are so many reasons to talk to a lender first. Almost every agent that has been doing this long enough will have many stories on why you contact a lender before you really ever go out and look at a house.

I get it, it’s so exciting to think about buying a house. You want to jump ahead, go out and look at some houses today. The problem is that you could be getting really excited too soon, there may be work you need to do with your credit before you can actually qualify for a mortgage. Or the hardest part is that you start looking at houses that are at a higher price point than what you qualify for…this is always disappointing.

The reasons you want/need to talk to a lender before you start the house hunting process:

  • You need to know IF you even qualify for a mortgage. There may be a few things on your credit that you need to clear up before you can qualify for a mortgage or better yet, there might be something that you can do to better position yourself for a better loan rate. Either one of these usually takes a little time, possibly 3 months or longer. So the faster you figure out your situation with a lender the faster you can buy that house!
  • You need to know HOW much you qualify for. Remember, that just because you qualify for an amount doesn’t mean that you need to spend that entire amount. Part of figuring out what you qualify for is also figuring out how much you are comfortable spending every month on your mortgage. You never want to be mortgage poor. The flip side to this is that you start looking at houses well over what you qualify for, it’s so tough to go backwards, so it’s best to set yourself up right from the beginning.
  • You need a pre-approval letter in order to make an offer. Sellers want to know that you qualify for a loan, otherwise they hesitate to accept your offer. This is especially true if you are in a competing situation. If a house gets competing offers, and other offers have a pre-approval letter that accompanies the offer, sellers are more likely to choose one of those offers. When a seller accepts an offer, then it takes their property off the market. Sellers don’t want to lose precious time of their house being off the market if a buyer isn’t pre-approved. For buyers, not being per-approved means that you could potentially miss out on a property that is perfect because you didn’t take this important first step.
  • Remember – just because you get a pre-approval with one lender this does not obligate you to use them for the actual mortgage. Just getting the pre-approval provides you with enough information to start looking at houses with an agent. It will also cover you if you do happen to come across a house you want to make an offer on. However, in the meantime, you can always shop around for other loan programs with multiple lenders and/or mortgage brokers. I can’t tell you how many times a buyer of mine has switched lenders during the process because they found a better rate or deal with another lender. So don’t be afraid to just start somewhere that is familiar or referred to you.

 

IF you need lender referrals to get started, please contact me at 314-583-0070 or shannon@livingtowergrove.com

The different kinds of properties to consider:

There are basically 4 types of properties that you want to consider:

Single family house:

 single family home - first time home buyer in st louis

  • This is usually what most people think of when they are considering buying a house. It is a detached home on it’s own piece of property.
  • This type of house has a yard – sometimes not a huge one and/or it may be something very small, but yet it’s a yard.
  • Great for individuals that what their space and don’t want to share any walls or common spaces.
  • You are responsible for all yard maintenance and any maintenance or repairs needed for the house.
  • Single family homes may be in an area that has a neighborhood association that has by-laws and yearly association dues, so it’s still important to ask about these things.

 

Townhome or Row House:

Townhome for first time home buyer in st louis

  • An attached house that usually shares at least one wall with another dwelling.
  • You will usually have your own individual back yard and front yard space, but these spaces tend to be smaller.
  • May share roofs and therefore any maintenance would need to be a neighborly agreement. For example, if you need a new roof, you would need to work together to agree on a roofing contractor and payment. Same thing with any other shared spaces. If the townhome is part of an association, any outside maintenance to the home may fall under their responsibility.
  • There may possibly be association dues that are required monthly, quarterly or yearly that need to be considered when figuring your total mortgage costs.
  • You may have to get approval from an association before making any changes to the front or back of the home, for example, if you wanted to paint it a different color.
  • You still have your own private front and back entrance into your home, unlike a condo.
  • You may be responsible for yard maintenance unless otherwise noted or stated by the association, if applicable.

 

Condo:

Condo- great property for first time home buyer in st louis

  • Most like apartment living. You usually have to enter a building before accessing the condo unit and have shared walls.
  • Condo units sometimes have amenities that might include a gym, common areas, game room, pool, guests suites, etc.
  • May or may not have designated parking. Or this option may be extra.
  • May or may not include a storage unit/ space.
  • Almost always have monthly condo fees. These fees can vary greatly and can be really high depending on the amenities offered. These fees need to be considered when figuring your mortgage payment.
  • Most traditional condos don’t include any yard space. Some condos have patio areas, others might have common outdoor areas for use.
  • Tend to have more restrictions and may or may not have restrictions for animals.

 

Duplex:

Duplex in St Louis

  • Described as a house that is divided into two living quarters. They each have their own entrances.
  • In some cases the living quarters may be side-by-side, and others are one unit on the main level and the other unit on the upper level.
  • When purchasing a duplex, you are typically purchasing the entire building.
  • The great opportunity here is that you can live in one unit and rent out the other unit, getting most of your mortgage paid for.
  • Not ideal for everyone, as you are still sharing a space and you are a landlord, but it is a great opportunity to live on the cheap.
  • If this is something that you think you might be interested in, talk to your agent about an ‘owner-occupant’ property. An ‘owner-occupant’ property is often referred to as a building where you live in one part and rent out the other part.
  • If you are a first time home buyer in St Louis, this may be a great way to afford a home and start building equity. However, be warned, this is not for everyone!

Once everything is lined up, what happens next?

Once you have contacted a real estate agent and have been in contact with a mortgage lender to get your pre-qualification, then the fun begins! You’ll pick out some houses that are of interest to you (and in your price point), your agent will then schedule appointments to view the houses and then you go!

Yes, you will have a TON of questions along the way, but discussing and understanding this process is best talked about in person since it’s a bit more complicated!

 

Best wishes to you on your journey to buying your first home! If you need anything or have any questions, please contact me. I would also be honored to have the opportunity to work for you!

Email: Shannon@livingtowergrove.com

Cell: 314-583-0070

What is equity?

You always hear a lot about equity..building equity…sweat equity…so what does it really mean?

What is equity? Equity is the amount that you actually own in your home. For example, if you have a $100,000 house and you owed $80,000 you have $20,000 equity in your home.

Why is equity so important? There are a few different reasons that equity is important. The first goal when you buy a house is to get to the 20% equity mark so that you don’t have to pay mortgage insurance.

How can I increase equity faster? The easy answer would be to make improvements to the house that increase its value. The other easy way to do this is buy a house for under market value that needs a little work. Spend the money to fix it up you’ll not only increase its value but you will also gain more equity.

How can equity benefit me? For one, once you have enough equity in the house you can borrow against it to make home improvements to further increase its value or you can borrow against it to pay off other bills. Equity also benefits you when you sell the house. The more equity you have in a house the more money you will have when you sell the house to put down on your next home. Having more to put down will allow you to buy a bigger home or a home in an area you weren’t able to afford before.

What is included in a mortgage payment?

Most people just write a check every month to their bank and don’t really understand what is all included in the mortgage payment. Here is a breakdown of everything that goes into a mortgage payment:

 

Principal mortgage – this is the amount you borrowed to buy the house. This is the amount you financed.

Interest payment – this is the amount the bank charges to loan you the money.  This can vary greatly depending on the interest rate you lock in when you buy a house.

Mortgage Insurance – if you didn’t put down 20% when you buy your house, you will pay mortgage insurance. This insurance basically covers the lender should you default on the loan. However, this is where you need to understand the difference between loan programs. Conventional loans will drop the mortgage insurance when you have 20% equity in a house. FHA loans have mortgage insurance for the life of the loan, no matter how much equity you have in the house.

Property Taxes – You will take your property taxes for the house and divide them by 12, this is the amount that will be due each month for your property taxes. Property taxes can vary greatly depending on the area. A house in Webster Groves might have double the taxes for a similar house in the city. Having the higher taxes can affect how much house you can buy. The higher the taxes the more they will eat into the total mortgage payment that you qualify for.

Homeowners Insurance – Same as your property taxes, you take your premium insurance amount and divide it by 12. This is the amount your will owe each month for your homeowners insurance. Homeowners insurance can vary depending on several factors, one of which is your credit score. The insurance can also depend on the area.

Association Fees –  If you buy a condo, villa or something of the sort, then there are typically monthly association fees. Association fees will vary depending on the building and amenities offered.  The amount of the association fees can affect how much you qualify for, so make sure you understand the process of buying a condo. Association Fees ARE NOT part of your mortgage payment, however, lenders to take this into consideration when they qualify you for a loan. Association fees are added into the equation as if there were part of your mortgage payment. The difference is that you are paying the association directly every month for this fee.

To read more about mortgage payment breakdowns visit my blog where I give you detailed information about escrow payments!

What to get setup on an automatic search designed specifically for you?

 

It can be a very competitive market here in the city. The best way to get the house of your dreams is to be the first to know about it!

Sign up below for your own customized search and be one of the first to know when a property hits the market. I’ll create a personalized search just for you based on the information below. The more information you provide, the better I can tailor your search to meet your needs. Don’t worry I won’t stalk you, I don’t like that either, but I may contact you do clarify a few things to help you better!

Fill out the form below and I’ll get you setup to automatically receive emails when houses hit the market! Don’t worry about getting it right, we can always refine the search as we need to!