Financially Preparing To Buy Your First Home

“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” ― Abraham Lincoln

Having made a thoughtful decision to buy a home (link to “Homebuyers: Finding The Right Time To Buy A Home”) and after calculating how much you can afford (link to “Homebuyers: Figuring Out How Much House You Can Afford”), it is time to sharpen your ax and prepare your personal finances. This foresight will ensure you can cover the upfront costs and obtain the most favorable terms on your mortgage loan.

Upfront Costs

  • A 20% down payment will lower your monthly payments and, in most cases, eliminate the need to carry private mortgage insurance.
  • Closing costs include a variety of expenses above the purchase price of your property, such as attorney fees, title search, title insurance, taxes, lender costs, and some upfront expenses such as homeowner’s insurance. The amount you’ll pay varies according to the size of your loan and tax laws in your area. Closing costs are average between 2% and 5% of the purchase price.
  • While moving costs are dependent on the amount of furniture, appliances, and other household items you currently own, average costs for local relocation within the Bay Area are below:
    • 1-bedroom home: $200-$500, 3-5 hours of labor
    • 2-bedroom home: $375-$750, 5-6 hours of labor
    • 3-bedroom home: $800-$1,500, 7-10 hours of labor
    • 4-bedroom home (and up): $1,000-$2,000, 10+ hours of labor

The hourly cost of labor varies widely among moving companies, so it is helpful to get a few estimates from different companies for a more accurate idea of expected costs.

Because Julie has collaborated with many different moving companies when assisting her clients with relocations, she has several prospects she can recommend to you.

  • Minor repairs and additional furnishings should also be considered. Cosmetic issues and normal wear-and-tear are not usually the responsibility of the seller, so keep some money aside for minor repairs. If you’re moving to a larger space, make a list and price out any additional furnishings.    

Most Favorable Loan Terms

  • Your credit score is the first thing a mortgage lender will check to determine your eligibility. For a conventional mortgage loan, your FICO score should not be lower than 620. Before applying for a loan, check your credit score and, if needed, take steps to improve it.
  • The 28/36 rule is generally used by lenders when considering a conventional loan. The 28/36 rule states that a household should spend no more than 28% of its gross monthly income on total housing costs, and no more than 36% on all debt which includes total housing costs plus other recurring debt payments. Taking steps to reduce the amount of these other recurring debt payments—car loans, student loans, and credit cards—will bring you closer to meeting the 28/36 rule. Before applying for a loan, keep these tips in mind:
    • Lower your monthly student loan payments by: (a) extending your repayment plan, (b) opting for a graduated payment plan, (c) enrolling in an income-driven repayment plan, (d) consolidating your student loans, or (e) refinancing at a lower interest rate (for details, click here and here). If your student loans are being paid by a third party (such as your parents), lenders will not consider them when calculating your debt-to-income (DTI) ratio.
    • Banks will exclude your car loan from your recurring debt payments when only nine months (or less) are left to pay it off.
    • Whenever possible, pay off your credit card debt. If you don’t have the cash at hand, consider borrowing from your 401K plan. While lenders won’t consider this new loan as part of your DTI, it is good practice to disclose it during negotiations.
    • Avoid taking on more debt until after you close on your loan.

Discover more about your debt-to-income ratio here.

Julie and her team of experts are ready to help you sharpen your ax and prepare you to achieve your dream of homeownership. We look forward to helping you with your home buying questions.

Please contact Julie at 650.799.8888 or Julie@JulieTsaiLaw.com to schedule a free consultation.

Finding The Perfect Neighborhood For Your First Home

As a first-time homebuyer, determining the neighborhood that fits your needs is pivotal to narrowing your home selection.

Choosing the neighborhood for your first home should follow a prescription whittled down by your values and priorities, always keeping your future plans in mind. You will eliminate much anxiety if you first decide upon a checklist of qualities which resonate most deeply with what you value in a home and in a location.

Julie and her team have years and years of experience in helping our clients devise checklists of preferences for their future neighborhoods. Here are our suggestions for major points to consider when deciding upon your new neighborhood.

Safety

Safety first, right? This is especially true if you have or intend to have children. The easiest way to learn about crime in a particular area is to visit CrimeReports.com.

Future Plans For The Neighborhood

Development plans can have a major impact on your home value, lifestyle, and traffic conditions. We can help you get in contact with the area’s Planning Division for zoning information and future development plans in your preferred neighborhood.

High-Performing Schools

For general information about schools in your desired neighborhood, you can always go to the National Center for Education Statistics website. More detailed information, including parent reviews, can be found at Greatschools.org. After you’ve done your online research, we recommend scheduling a tour of the schools, which Julie and her team can also help you arrange. You may even ask to be put in contact with other parents who can answer any additional questions you may have.

Make sure the schools are in good financial health. Ed-Data enables you to access financial information for school districts and county offices of education. You may also review a school’s financial information at the Foundation Center’s website.

Convenience

Consider if your commute to work from your desired neighborhood is tolerable. Taking a test drive at your normal commuting times may be helpful. Also find out if grocery stores, gyms, car repair and service shops, public transportation, schools, and health services are within reasonable distance.

Activities & Amenities

Think of your daily and weekend routines. Some buyers will never consider choosing a place which does not offer ready access to open spaces, while others consider a vibrant cultural or culinary scene essential to their sense of satisfaction and wellbeing. List your essentials and then research the different neighborhoods you are considering. Julie and her team will work closely with you in determining which neighborhood is the closest match.

Once you’ve narrowed your search, it is time to hit the streets and “date” your potential choices. As you do, use all your senses and trust your gut. First impressions are often reliable. Visualize yourself in the neighborhood. Where will you jog or walk your dog in the morning? Are there sidewalks? Look up an address on the Walk Score website to obtain a “walkability” rating for the area. Check the traffic at different hours. How congested does it get?

Visit the neighborhoods at different times of the day. Are people out and about during the evening hours? Are kids playing along the street? Enter a café and get a feel for the level of interconnectedness of your future neighbors. Is the social scene vibrant or are people basically keeping to themselves?

Look for activities that show owners are keeping up or investing in their properties. Also look for signs that the city is doing a proper job in maintaining public areas. Beware of cracked streets and sidewalks, broken streetlights, and vacant homes with shattered windows and overgrown yards. Find out all you can about the city’s Operating and Capital Improvement Budget and its overall financial health.   

If you already have your eye on a specific property, knock on doors and chat with your potential future neighbors. Ask about crime, noise, traffic, and neighborhood issues. Julie can even help you find a neighborhood group and attend one of its meetings.

Julie and her team of experts are ready to guide and help you choose the neighborhood that most closely matches your priorities, values, and overall lifestyle. We look forward to helping you on your neighborhood search.

Please contact Julie at 650.799.8888 or Julie@JulieTsaiLaw.com to schedule a free consultation.