Buying a New Home

A Guide for First-time Home Buyers

Introduction

Buying a home is one of life’s most exciting events! It’s both a financial journey and an emotional one. Not only are you making a decision about where you’ll be living for the next chunk of time, you’re also spending quite a lot of money. Your house is your greatest asset, and you want to be sure you’re choosing with both your heart and your head.

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Buying a New Home? Here’s What To Think About First

You’re going to face a lot of different decisions. Here are three tips to keep in mind as you start the house-hunting and mortgage process.

Look to the Future

When considering what type of home to buy, think about what your life will be like in five years. Are you going to have children? Will you need to care for elderly relatives in your home? Are you hoping to rent your house after fixing it up? Your future needs should influence today’s real estate decisions.

Do some research about the neighborhoods that appeal to you and find out about things like the quality of schools and zoning regulations. First-time buyers need to be especially careful not to fall in love with a house that won’t suit their needs in just a few years. The life you have today might not be the one you live tomorrow!

Take a Good Look at Your Finances

For most people, a house is the most expensive purchase of their lives. Deciding on your home isn’t just about choosing where you want to live, it’s also about knowing how much you are able to spend every month on housing. Not only will you be responsible for a mortgage, you also need to consider taxes, insurance, repairs, possible association fees, closing costs, and other expenses.

First-time buyers might be used to rental fees—now there’s a lot more to think about! By drawing an accurate picture of your finances and gaining a precise understanding of how much you have to spend every month, you’re setting yourself up for financial success while preparing to buy a house. Start gathering your paperwork before you even start looking at homes to gain a clear understanding of your budget—you’ll need those papers when you visit the bank.

Get Help from a Local Real Estate Agent

Online sites such as Zillow can give you a good general sense of housing prices in your area, but you really need to talk to a local real estate agent to get a feel for what to expect. Housing prices can vary widely, even in the same town, and an agent can steer you toward the properties that fit your needs. Consider the wide varieties of neighborhoods in the Upper Valley and surrounding areas. Every town has different character, different opportunities, and different housing prices. By working with someone who knows the nuances of the different towns, you can find the best fit for your needs.

BONUS TIP: Don’t stop saving your money once you have your down payment. It’s a good idea to build up a safety net just in case you get any surprises in the first few years of home ownership.

5 Questions You Should Asking Yourself Before Buying a Home

Preparing to purchase your first home can be daunting. Make sure you’re ready by asking yourself these five questions first!

Buying a home is major financial process that can take months to complete. Potential homebuyers should start this process by making sure that they’re ready for some of the less obvious aspects of home ownership. Getting ready to own a home is more than just being able to make the mortgage payment every month. Ask yourself these questions before you start the process of getting a mortgage and looking for a home.

1 What will I have to sacrifice from my budget to buy a home?

When you apply for a mortgage, you’ll submit a lot of information about your personal finances. Your mortgage broker will then be able to give you an upper limit as to how much you can borrow for a house. In many cases, however, it’s not a good idea to buy a house that costs the maximum amount of what the bank says you can afford. Take the time to look at your budget and determine how it might accommodate the payment of a mortgage before you start looking at houses. Often, it makes sense to buy a less expensive house and increase your savings.

2Is my credit good enough?

A poor credit score won’t necessarily exclude you from qualifying for a mortgage, but a better credit score can help you get a lower interest rate. Fortunately, there are lots of things you can do to improve your credit score. Get copies of your credit reports, work to fix any errors, then take steps to improve your score as much as possible before you apply for credit.

3How long will my savings last?

Plenty of financial advisors tell their clients to save up enough money to pay for eight months of expenses to prepare for emergency events, such as job loss or illness. Banks also like to see that you have enough in savings to cover the mortgage payment for a few months. These savings should be in addition to the money you have saved for repairs, a down payment, and closing costs. Home ownership comes with many more unexpected expenses than renting does, making it necessary to have a lot more in savings than you had while you rented.

4What do I know about home repair?

At first glance, this doesn’t really seem like a question related to mortgages, but if you’re considering buying a home, you need to know that it will probably need repairs. If you rely on a landlord to fix everything in your current house or apartment, you might want to take the time to learn about home maintenance and repairs. Understanding the basics of how a heating or air conditioning system works, how long a roof should last, and how to fix a running toilet can save you a fortune on home maintenance and repair costs.

“A good baseline is to save 1% of the cost of the house for maintenance costs.”

The money you save can make the difference between paying your mortgage consistently and missing the payment one month. Most importantly, being honest about how much you know about home repair is crucial for when you start to shop for a house. If you’re a beginner at home repairs, then taking on a house with a lot of renovation work is a path to disaster. Take the time to think about what kind of work you can take on and what your repair budget is like before you start looking at houses.

5What do I want in a home?

It’s a good idea to think about the features that are the most important to you before you start working with a Realtor. Start by thinking about different factors, such as commute time from work and the schools you want your children to attend. Once you have a few neighborhoods picked out, start thinking about the amenities that you need in your home. Doing this before you start looking for homes will help you narrow the field considerably. You’ll be better able to compare a small list of houses than a large one, and you won’t be distracted by homes that have a lot of nice features, but not the ones you need.

How Preapproval Can Set You Up for Success

You might think the first step in buying a house is perusing the real estate ads in your local paper or browsing online listing, but you might be more successful in your house hunting if you first apply for preapproval.

It might feel counterintuitive to start the mortgage process before you even find a house you like, but applying for preapproval can make the process of finding and buying a house quicker and easier. Here’s how.

Getting preapproved will let you know the price range you should be looking in. How much can you afford to spend on a house? By filling out a preapproval application either online or in a Mascoma Bank branch office, you’ll discover a range that has far more to do with actual numbers than gut feeling, which is always a good thing when you’re shopping for a new home. One of the worst feelings is discovering the house of your dreams, falling in love, and learning that the price is way too high for you to afford.

A preapproval lets sellers know that you are serious about buying a house. Depending on the situation, a seller might be more willing to consider your offer if you’ve already shown some level of commitment to buying. While a preapproval application isn’t difficult, it does take time and effort to complete. By showing an early investment in the process, you’ve proven that you’re eager to make the purchase and have an understanding of the work involved.

A preapproval shows sellers that a bank has already confirmed that you can afford their house. If a seller is faced with a few different offers, the buyers who have preapproval from a bank have shown that they are financially positioned to buy the house will be more attractive than buyers who haven’t taken that step. Offers from these buyers are far less likely to fall through and far more likely to close on time. That’s an attractive deal.

To apply for preapproval, you need to get your paperwork in order. This forces you to prepare early for the mortgage process, which means if there’s anything missing or if your credit report has inaccuracies or if it simply takes you longer to hunt down what you need, you can solve issues before getting too far into the process. It’s never too early to start!

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10 Things You Don’t Realize Could Hurt Your Credit Score

Having a good credit score in imperative to anyone applying for a mortgage. Learn what might be bringing down your score.

When you’re applying for a mortgage, your credit score can be the difference between getting approved for the best interest rates and having to pay penalty rates. Unfortunately, no one really thinks too much about their credit score until they need to apply for a loan. These 10 things affect your score more than you realize.

1Paying your bills late

Every time you make a late payment (typically more than 30 days late), a notation is made on your credit report. This includes utility bills. Be careful about paying everything on time.

2Applying for too much credit

A notation is made on your credit report every time a lender has to check your credit. Each of these checks takes less than ten points off of your credit score, but those points can really add up if you apply for a lot of credit in a short period of time.

3Carrying high balances on your credit cards

Maxing out your cards lowers your debt-to-credit extended ratio. This ratio can account for up to 30 percent of your credit score. One solution is to ask for an increase to your credit limits. This will make it appear as if you’re only using a fraction of the credit that you’ve been extended. Paying off debt will also help this ratio, and it will help the debt-to-income ratio that mortgage lenders look at very carefully.

4Closing old credit card accounts

The length of your credit history is important to your score. When you close old credit cards, your credit history could look a lot shorter than it really is. Before you close a line of credit, we suggest that you talk to a lender.

5Not making the full minimum payment

If you can’t pay the full minimum amount of your debt payment each month, it can hurt your score almost as much as if you never paid the bill at all. That’s because these partial payments are logged as missed payments. Keep track of how much you should pay each month.

6Keeping utilities out of your name

Utility accounts are a great way to build credit. They establish a credit history and show that you can make payments on time. If you don’t have any utility accounts in your name, however, you miss out on these advantages. If you’re applying for a mortgage, move one or two accounts to your name.

7Co-signing a loan

The debt that you co-sign for can show up as a liability on your credit report. Too many liabilities can lower your credit score. More importantly, many lenders will count this debt against you when computing your debt-to-income ratio. If possible, take steps to get yourself removed as a co-signer from any loans.

8Having too many accounts

Opening a checking and savings account reduces your credit score by a few points. While this seems strange, it’s rarely enough points to make a difference. If you have multiple bank accounts, however, each one could reduce your credit score enough to be a problem. Close and combine some of your smaller accounts to avoid this problem. You’ll be simplifying your finances in the process.

9Wrong information

More than 90 percent of credit reports are estimated to have some type of error. This could be a wrong address or a delinquent account that was wrongly assigned to you. Review your credit report and fix problems before it’s urgent.

10Too many disputes

When false information appears on your credit report, the common wisdom has been to file a dispute with the credit bureau. Too many disputes, however, can cause your account to be flagged as a problem. Only dispute the information that makes a difference to your score. Leave the rest of it alone for now, and fix it after you’ve applied for a mortgage.

How Much Should You Spend on a House?

You’ve decided that you’re ready to buy a house. Congratulations! Deciding to embark on the search for the right house at the right price is an accomplishment in itself. Part of the search is figuring out your price range.

By figuring out the amount you can spend on your new house, you help create a far more efficient home search and save yourself from falling in love with a place you can’t afford. Some people are able to keep track of their personal finances down to the last penny and know at any given moment how much debt they are responsible for every month and how much money they have in the bank. For other people, this might be the first time they’ve taken a good look at their financial situation and asked the questions they should before buying a home. This can be stressful, but it’s a very necessary step in the journey toward home ownership.

First, think about how much money you’ll have for a down payment and closing costs. Try not to spend more than 28 percent of your income for housing. However, everyone has a very different situation and in many markets, people might find this is not possible. These general suggestions do not apply to everyone. Talk with a lender for more specific advice that takes your own situation into account. In the meantime, prepare for your mortgage journey with a few thoughts when deciding how much you should spend on a house. You might also want to start brushing up on mortgage terms to know.

Keep track of your expenses. You should start doing this as early as possible, and keep doing it even after you’ve bought your house. Track your monthly bills, including utilities, student loans, food expenses, credit cards, car loans, and any other bills you pay every month. Only by knowing exactly how much money you have after paying your current expenses can you figure out how much money you have to spend on your house.

Track your income. You’re going to need all of this information when applying for preapproval, so start thinking about it now. Save your pay stubs, tax statements, and all other documentation so you know how much you’re really earning.

Don’t forget maintenance and upkeep costs when considering the cost of a house. Plan ahead for the little emergencies that are going to pop up when you own a home. A good baseline is to save 1 percent of the cost of the house for maintenance costs. If you find yourself attracted to an older house that has a lot of structural and cosmetic issues that will need attention, remember that you’re going to have to pay for all that attention.

Assume life will throw curveballs. Be assured that the unexpected is going to happen. Illness, accidents, job disruptions, relationship disasters—it’s coming, and they’ll affect your ability to pay your bills, including your mortgage. If buying a less expensive house is going to enable you to save more money in order to weather life’s emergencies, that’s probably what you should do.

5 Mistakes to Avoid When Buying a House

Your home is likely to be the most expensive thing you ever purchase. With a little foresight, you can avoid some of the mistakes other people have made in the past.

Buying a new home is exciting. It’s thrilling to walk through different houses and use your imagination to see if you can picture yourself living there. Is this the right kitchen to prepare meals for your growing family? Is this the sun porch you see yourself reading the newspaper on while your grandchildren play in the yard? Is this the fireplace you’ll settle in front of with a good book while winter storms rage outside?

Looking for a new home can also be frustrating. How many visits does it take to be convinced this is the house for you? Is someone else going to make an offer before you get a chance? Is this house too much of a fixer-upper? Is the school system good? Are the repairs you see that need to be done purely cosmetic or do they speak to a larger, structural problem?

While it’s impossible to know for sure that the house you finally buy is exactly the right one for you, there are a few mistakes to avoid when buying a house to keep from making a major real estate mistake.

Don’t forget to consider ALL the costs of buying a house. Some people have the skills necessary to fix, update, and improve just about every physical aspect of their home. And then there’s the rest of us. We have to hire people to do stuff like replace the roof, clean the chimney, and build the addition. Think of these costs such as these before completely falling in love with a fixer upper that needs a lot of work.

Don’t focus on just the house. When you move to a new house, you’re adopting a new neighborhood, a new community, and a new view. Even though you’ll probably spend more time in your house than out of it, it’s important to feel happy with the world you’ll find at your doorstep. Are you considering moving to a smaller town than you’re used to? Consider the pros and cons of small-town living. Spend some time becoming part of a new community before committing to living there, if you can.

Your bank is going to look carefully at the appraisal, so you should too! An appraiser will evaluate the house and provide a report on the house’s value. If the appraisal comes back much different from what you expected, speak up. Talk with your lender and realtor to make sure everything is correct and that the recent sales the appraiser used as comparison truly do match well to your house. Refer to this article in the Wall Street Journal for ideas on things to look for if you think your appraisal was in error.

Don’t skip hiring a trusted home inspector to thoroughly examine the property. Ask trusted friends and relatives for recommendations on who to hire, and check out the American Society of Home Inspectors for further tips. If you have specific concerns about, for example, mold, flooding, or the septic system of a house on a waterfront, be sure to find someone who has experience with these areas. A home inspector will find out what needs work, or even find issues that could lower the house’s value in the future. It’s their job to make sure the house you are buying is sound so you don’t find any surprises after living there for a week.

“Try not to spend more than 28 percent of your income for housing.”

Buy a house for your future, not for your present. When you’re shopping for a new house, you’ll want to bring your crystal ball so you can see into the future. At least bring an open mind about the next 10 years. Are you going to start a family soon? Are your kids heading to college in the next few years? Are you going to want to age in place as you grow older and require more care? By taking the future into consideration when deciding on which house to buy, you can better position yourself for a successful transition into the future that you choose.

10 Mortgage Terms to Know When Meeting With Lenders

Are you a first-time home buyer? Here are 10 glossary terms that will help you speak the language of banking!

Your first excursion into the world of mortgages can be daunting. Not only do you need to take a good, hard look at your finances, which can be a difficult task, you also have to learn a whole new vocabulary so you can understand what your lender is telling you!

Of course, if you have questions about anything your mortgage lender tells you, you can speak up or give us a call. Here at Mascoma Bank, we’re here to help you through the process of buying a house. If there are terms we use that you don’t understand, we want to define them for you.

You can also use this handy glossary of 10 mortgage terms to know to refer to if you need a reminder about what some of the words and phrases you’re hearing actually mean. Make sure you know these terms before meeting with your lender so you can be sure to stay on the same page!

Adjustable rate mortgage (ARM): this is a loan that often has a lower interest rate than a fixed rate loan, but the interest rate increases at certain times so that eventually you end up paying more per month. With a fixed rate loan, your interest rate stays the same for the life of the loan. ARMs have maximum and minimum amounts that the interest rate can change.

Annual percentage rate (APR): this is the interest rate of everything included during the entire life of your loan. It’s not the number that decides your monthly rate—instead, this is the interest you’ll end up paying on everything, including broker fees and other charges.

Appraisal: when buying or selling a house, you need to have a professional appraiser decide how much your house is worth. Your lender uses this information to make decisions about your loan.

Closing costs: when you finalize your loan, payments need to be made for insurance, taxes, financing costs, and other fees. You will be told what your closing costs are going to be in a document called a closing disclosure so you can plan for them.

Collateral: something of value against which you borrow money. If you don’t pay off the money, the collateral becomes owned by whoever you owed money to. With a mortgage, the property is the collateral. If you are unable to pay off the loan, the lending bank becomes owner of the property.

Credit score: this is the number that shows the quality of your credit history. Lenders look at this score as part of how they know if a customer is likely to pay off a loan or not.

Debt to income ratio: this is another number lenders look at when considering a mortgage. This is your gross monthly income, or how much money you make every month, divided by how much money you spend every month on recurring debts, such as your car payment or school loan payment.

Down payment: this is how much money you pay to buy a house that isn’t included in your loan. The more you can afford as a down payment, the lower your monthly mortgage payment will be, and the less money you’ll pay overall.

Equity: this is the amount of money that is the difference between what you owe on your house and how much the house is worth. For example, if your house is worth $250,000 and you owe $150,000 on it, your equity is $100,000.

Principal: this is how much you are spending on the actual property. When you get your monthly mortgage statement, you’ll see that part of your payment goes toward the principal and part of it goes toward the interest.

Buying a New Home - Click to Download this Helpful Guide