Are you a potential first time home buyer with these questions?
- How much can I afford?
- How much money do I need to buy a home?
- How do I keep my home long term?
- What are the lowest-cost first time home buyer programs?
If you’ve asked yourself these questions, watch this video.
MyMortgageInsider.com interviewed Sr. Mortgage Advisor Tom Pessemier (MLO 117989/NMLS 117989) who works with many first time home buyers. Here are his insights on how first time home buyers should plan and prepare for the financial aspects of buying and owning a home.
Tim Lucas: Hi my name is Tim Lucas from mymortgageinsider.com. I’m here today with Tom Pessemier a senior mortgage advisor with Mortgage Advisory Group in Bellevue, Washington.
Today we’re going to talk a little bit about first time home buyers and common questions that have in specifically about money. First of all, how can a first time home buyer and now how much they can afford when they’re buying a home?
Tom Pessemier: That’s a great question Tim. It really comes down to, first, having a really good, open and honest conversation with your loan officer.
Any great professional realtor can recommend that first off before they really get out and start kicking tires, looking at houses – for couple of reasons: one, often it’s a matter of a real estate agent – goes out and shows a person a home whether they qualify it or not.
Now it’s the best thing in terms of giving customer service – because often sometimes people can qualify for more house than what they’re looking at and don’t know before talking and getting their numbers squared away. Other times, it can be the opposite of fact. They get their hearts broken and they just can’t pull off what they’re trying to do.
Tim Lucas: Right, it’s much better to know what you can qualify for before get going and get your heart set on to something. How do real estate agents usually respond when home buyer walks and they’re not pre-qualified yet?
Tom Pessemier: Well, most of the real estate agents that I worked with that’s usually the first thing they’re going to recommend to the buyer is to have a conversation and shake down and get drilled down to figure out what’s going on. There’s so many moving parts to people’s financials these days – that it’s always a good idea just to have yourself looked at and make sure that you’re ready to go.
Sometimes people are really close but they’re not quite there. Sometimes they’re going to be some little changes that can be made to get somebody ready to go in short order – other times that they ready to go or the times that they need some time.
Tim Lucas: Right, a lot of people may have $5,000 in the bank or $10,000 in the bank. A lot of people are just really curious on how much they actually need to go out and buy a home. So, what are some of the considerations that people need to think about as far as how many dollars they need to the bank before they go out and buy a home?
Tom Pessemier: Great question. It’s different really for everybody. You get some people that veterans for example are active duty military who are eligible for a VA home loan. You can have $500 to your name and get into your first place – and you get the seller to pay your closing cost for you and you’re in a double zero situation where you’re not putting any money to the table other than maybe a $1,000 earnest money or $500 even on some cases.
That same thing can be true for some other loan programs – but it’s always good to see people that have some financial security about them. It’s not just getting into their home that people have to be concerned about – it’s also sustaining that and making sure that it’s something that they can maintain long term.
Buying a home isn’t a disposable one time deal, you do it and you’re done. You have to kind of live with it when you’re finished too.
Tim Lucas: So, what are some of the best home loan programs? You’ve mentioned the VA home loan to have first time home buyer program that might not require a whole lot of money. Are there other programs like that require kind of a minimal down payment and the lowest monthly payment possible?
Tom Pessemier: Yeah, there sure are. The VA’s one of my favorite loan programs for people who are eligible for that program – just simply because it comes either with mortgage insurance in terms of just an upfront funding fee, not a monthly premium so it’s financed over the life alone. It’s a small percentage.
Actually for veterans that have disability associated with their service, even as little as 10%, they’re exempt from the funding fee for life. There are other programs out there too like the US Department of Agriculture has a program that we call the USDA Loan.
It’s also a zero down home loan. It comes with a reduced mortgage insurance premium. It’s about a third of what the Federal Housing Administration for FHA loans. FHA is also a good loan for people that aren’t able to get around the hurdles.
VA, you have to be a veteran or you have to be in an active duty and eligible. USDA program is to geographically driven. It’s meant for homes that are in a little bit more rural areas – and there’s an income cap on it. In King County, Washington State – you can’t make more than $ 93,450 per year right now to qualify for that program and if you do, you’re not eligible for it.
Sometimes FHA is the ace on the hole. Other times can be other conventional programs that are back by Fannie or Freddie. There are a number of alternatives out there.
Tim Lucas: So, basically, bottom line is somebody really needs to talk to knowledgeable loan officer and see what they’re eligible for. Some people may only be eligible for one loan program depending on where they’re looking for a house or their income level and a myriad of other factors that could come into play.
They could be eligible for all 4 loan programs but they’ll maybe own this one. They need to contact somebody like you to just really drill down what they can qualify for.
Tom Pessemier: Absolutely and there are other things too that play into effect. If you’ve had a bankruptcy or a foreclosure or a short sale or loan modification – some of them, they’re different programs, they’re different waiting periods.
You’re right, there’s so much involved. The process is to really have a conversation as early in the process – sometimes even months or even people that I’ve been working with for a year that are finally been able to get into a place.
Tim Lucas: So, another probably big concern from a first time home buyer is, are they going to be able to stay on that home long-term with all the different foreclosure, things that are going on right now and things that are happening in the market – people are pretty probably are afraid when they’re buying their first home if they’re going to be able to keep that home for the entire loan term without losing it.
How much money in the bank would you say someone needs to have to count for emergencies like a job loss or medical payments, or a car blowing up or these things that are happening in life?
Tom Pessemier: God forbid. There are so many different things that can play into what somebody really needs to be prepared for. I was like to go back to, refer people to financial advisors because everyone situation is so individual.
I have a group of financial advisors in my area that I refer to pretty often because I get these questions a lot and really a certified financial planner, someone that can really again, drill down deep on the other aspects of the person’s financial situation and give what really good custom feel to what they ought to do.
I like the idea of having six months of all your expenses and reserves kind of cross the board, just a general thing. Again, everybody is very individual – there are people that have the sources of income that are increasing and they want to get in a home before the market really goes in the wrong direction much further. The market’s really hot right now.
Again, I think timing can be really important but also people’s individual factors can really customize a situation.
Tim Lucas: So, do you have any final words about first time home buyers and money?
Tom Pessemier: Well, I think for anybody that’s considering buying a home – it’s amazing if you’re really looking at the differences between being a home owner versus renting.
One of the things a lot of people overlook is also the tax benefits of being a homeowner. I regularly refer people to a couple of CPAs in my area and run the numbers for them and a lot of CPAs are accountants are charged to do that in anticipation of they’re going to end up with their client, right?
If you get into a home but often people don’t realize especially if they’re in their upper income brackets, being able to really drill down to figure out what that’s going to look like in dollars and cents.
The appreciation is really just kind of icing of the cake. Housing has historically always gone up without a few bumps on the road – but long-term housing is always been one of the great staples in the American economy. So, now’s a really great time to buy and I think people owe it to themselves really to figure out what they can qualify for and see if really they should become home owners.
Tim Lucas: Great, well thanks for talking to me today Tom. You can find more about Tom at pessemierfinancial.com. I’ll put the link at the bottom of this YouTube clip so you can click on that. Also, check out mymortgageinsider.com.
Check back as soon for part two of this interview when we talk about the prequalification process and what first time home buyers can expect when they’re getting prequalified.