Expert: John Hendricks - 10/7/2007

Question
I just recently got married.  And we live in Idaho.  Now is a great time to buy a house here, because there are so many for sale.  It is a buyer's market.  Neither one of us have owned a home before.  He has a great credit rating and I don't have bad credit, but probably not enough.  Neither of us have had a credit card, but he has obtained his with a car payment.  Should we get a credit card to try and build up our credit before applying for a loan on a home.  Should we find a home first and then go to apply for a loan?  Or should we go to the bank first and see how much we qualify for?  What should we be aware of or leery of?  Any advice in the home buying process is greatly appreciated.  And do we have to have a down payment, and what happens if we don't have a lot to put down?  As you can see we know nothing and anything you can help with would be appreciated.  Thanks for your time!

Answer
Dear Marisa;

Thank you for giving me an opportunity to help in answering your question. First, congratulations on making the decision to start the process of buying your first home.  I have worked with many 1st time home buyers, so the suggestions I will be making to you have been used by many. Some were brought to the realization that they were not qualified, but we worked with them to eventually place them in a position to buy a home. The majority of other 1st time home buyers became pre-approved for their loan prior to searching for a home, then searched for their dream home, and successfully closed escrow shortly thereafter.

The number one thing to do is find a great Realtor. You pay no commissions for this representation since the seller pays for this service from the proceeds of the sale. You may want to talk to your friends, family members, or co-workers who may have had some great experiences with a Realtor. Since there is no cost for this service, don’t select an inexperienced Realtor, get a Realtor that is experienced and has a good reputation in the community in which you want to buy a home. If you have a difficult time finding one, let me know via e-mail (JohnHendricks@Marin1.com) and with some of my connections in Idaho, I will find you a Realtor that will take great care of you with the pursuit of buying your 1st home.

The reason you want the Realtor first is they usually have a seasoned mortgage broker. The mortgage broker will sit down with you and listen to your story, review your credit history, and your financials including your down payment situation. This initial meeting will help you get prepared to get pre-approved to purchase a home. The only cost is the cost of a credit report which is usually $45-$65. I would also recommend that you get a copy of the report, because each time you run your credit report for the each of you, it lowers your overall credit score. You could use this report for further inquiries with mortgage brokers or bankers to get pre-qualified for a loan and get information on the type of loan that is being offered to you without harming your FICO Score (credit report score).

Also, by selecting your Realtor and using their experience to help get you started, you begin establishing a long lasting relationship for years to come. Many of my clients have bought and sold homes through me for many years, and now I am helping their grown children buy their first home. It really becomes a great relationship for all.

Only after you find out from your mortgage broker what you qualify to purchase, should you start previewing homes with your chosen Realtor. The mortgage broker will give you the maximum purchase price and estimated payment for what you qualify for. Take a close look at the payment and factor that amount into what you realistically can afford to pay on a month to month basis as you do not want to be mortgage poor. You don’t have to buy at the pre-approved purchase price. You can always settle a home at a lower price with the comfort of knowing that you can make your monthly payment easily which results in less stress.

Lastly, I can’t stress enough to understand all your costs up front. Prior to writing an offer on a home, have the mortgage broker give to you a complete estimated breakdown on all you loan and escrow closing costs that you will be confronted with at the close of escrow (the day your mortgage begins and you own the home).

There is much more to cover, but hopefully this has given you a brief overview on how to get started with this exciting adventure of buying a home while making one of the largest financial commitments in your life. Once again, if you need the name of a great Realtor, please don’t hesitate to e-mail me. Good Luck…

Warmest Regards;
John Hendricks