As a young adult, there are few occurrences that make you feel more like a "grown-up" than when you purchase your first home. It's a process that's frightening, somewhat frustrating and fun -- all at the same time.
With the economy and the housing market wreaking havoc with prospective homeowners' emotions, even considering a first house can leave you wondering, "Is there ever going to be a right time?"
Late last year, Lawrence Yun, the chief economist for the National Association of Realtors, predicted that home sales would rise 4 percent in 2012. That's the good news. However, he added that home prices would probably be up an average of 2 percent nationwide.
Tight mortgage conditions are holding back homeowners and consumer confidence is shaky, according to Yun. Moreover, statistics for first-time homeowners haven't been too impressive. In fact, in 2011, first-time homeowners made up only 37 percent of purchases, which was down 50 percent from 2010.
Kelly Stotlar and other Realtors are ready for that trend to be over. Now in her late 20s, Stotlar is focusing on helping her peers locate and purchase their first home.
Coming up with a down payment is a big part of buying your first house, Stotlar says. "Down payment of a mortgage usually depends on the cost of the home and the type of mortgage that is obtained," she says. "Typically, 20 percent of the purchase price is asked as a down payment to avoid paying private mortgage insurance. Since first-time homebuyers sometimes have a hard time coming up with such a large down payment, Housing and Urban Development's Federal Housing Administration loan requires 3 percent down or sometimes less."
Buyers are also expected to have funds to use for earnest money -- a deposit that the buyer makes at the time an offer to purchase is made. "This shows the seller that they are serious about purchasing the home," Stotlar says. "Closing costs can also be about 3 to 4 percent of the purchase price that is paid at the closing."
Just as it's important to find the right Realtor by checking with friends or family to give you suggestions, picking a lender is paramount when buying your first house. "If you are considering a small mortgage company, check to see how long the company has been in business," Stotlar says. "If you are considering a larger company, it's more than likely that someone you know has had experience with them."
Stotlar suggests asking at least three or four companies for mortgage rate quotes. "Compare them to see what is best for you. Whichever one you choose, make sure you feel comfortable with your lender and that he or she can answer all your questions and concerns."
Some people are surprised at the amount of money banks are willing to lend. "Just because you are approved for a large amount to purchase a home, doesn't necessarily mean it's what you'll be comfortable paying each month," says Stotlar. "Typically, lenders suggest you spend no more than 28 percent of your monthly income on a mortgage; this would include taxes, maintenance and insurance.
"It is important for new buyers to consider costs and maintenance that come with being homeowners. A homeowner is responsible for their mortgage, utilities, lawn care, garbage and other bills and also anything that needs to be repaired or replaced."
Stotlar notes that SmartMoney.com has a calculator called "How Much Can You Afford?" that is useful for first-time buyers. "It is a helpful tool to see what you can really afford," she says.
Once you find a Realtor and a lender, take your time when choosing a house. While it just makes good sense to look at the basics -- foundation, roof, furnaces, air conditioners and plumbing -- Stotlar reminds potential buyers to consider several other options. "Buy a 'home' first -- something that will be comfortable to live in. If you are planning a family down the road, leave room to expand."
And finally, think to the future. Maybe you love the house and don't mind the nearby interstate, but in five years, you may want to sell this place to buy a second home. Remember that highway noise isn't going away and future buyers may not be as open-minded as you.
"It's so important to consider the location and the neighborhood and think about how it will suit you now -- and in the future," Stotlar concludes. "So always think about resale value down the road."