9 Tips for First Time Home Buyers in Maine [Your Journey Starts Here] Roger Odoardi From climbing the crags of Mount Katahdin to soaring over rapids on the Kennebec River, Maine has been a destination for adventure-seekers since time immemorial. But, despite what its “Vacationland” moniker might suggest, Maine is so much more than just a great place to visit. With close-knit communities, an abundance of natural beauty, proximity to major metropolitan areas and a high quality of life, Maine is the perfect place to put down roots — a not-so-subtle nod to its other nickname, “The Pine Tree State”! Given that becoming a first time homeowner is one of the most exciting adventures you’ll ever embark on, it only seems fitting that your journey begin in Maine. Know that there will likely be bumps along the way; what’s important is that you plan ahead to give yourself every possible advantage, thereby making the road to becoming a first time home buyer in Maine that much smoother. Tip: Get Your Finances in Order Before You Start House Hunting One of the most important steps of the home buying process happens well before the process even begins. A financially secure home buyer is a well-prepared buyer, so carve out time in your busy schedule to sit down and carefully go over your finances. Ask yourself the following: Do I have any outstanding debts that need to be paid? What is my debt-to-income ratio? (Note: Lenders typically look for a DTI of 43% or lower) Do I have enough money in my emergency fund to last me three to six months? How much am I able to spend on a home? Do I have enough money set aside for a down payment, or will I need assistance in the form of a gift? Do I have enough money set aside to cover closing costs? Am I prepared for the unexpected costs of home ownership? Tip: Assemble Your Real Estate Expedition Team Just as every famous explorer has an expedition team, every home buyer needs a team of real estate professionals to support them throughout the home buying journey. Your real estate expedition team should consist of the following: A mortgage broker who can act as a liaison between you and potential lenders. Your mortgage broker should be able to leverage their industry experience and network of connections to help you get the most competitive mortgage rates and terms available. A real estate agent who can help you sort through hundreds of homes until you find the one that’s right for you. Your real estate agent will also act as the middleman between you and the seller’s agent and will negotiate an offer for your new home. A real estate attorney who can provide legal counsel throughout the home buying process, from preparing and reviewing purchase agreements and other important documents to handling closing. Tip: Leave No Stone Unturned If you’re a first time home buyer in Maine, it’s in your best interest to accept help wherever you can get it, especially when it comes to financing your home. There are first time home buyer programs available on both a local and national level, so be sure to do your research before you get started. Local MaineHousing’s First Home Loan Program offers low fixed interest rate mortgages to first time home buyers in Maine. Mortgage options include little to no down payment mortgages, advantage down payment and closing costs assistance and more. National Fannie Mae’s HomePath ReadyBuyer Program is designed to “[break] down the home buying process into easy-to-grasp lessons online.” Buyers who participate in the program are eligible for up to 3% closing cost assistance toward the purchase of a HomePath property. The U.S. Department of Housing and Urban Development’s (HUD) Dollar Homes initiative “helps local governments foster housing opportunities for low-to-moderate income families and address specific community needs by offering them the opportunity to purchase qualified HUD-owned homes for $1 each.” The National Homebuyers Fund offers Down Payment Assistance (and/or closing cost assistance) up to 5% of the mortgage loan amount for home buyers in all 50 states. Tip: Figure out How Much House You Can Afford You probably wouldn’t make an expensive purchase such as, say, a new 60” flat-screen TV or a week-long vacation in Italy without seeing whether you had enough money in your bank account to afford it, first, right? The same logic applies to buying a home. There are a number of calculators available online that can help you determine how much house you can afford based on factors such as your monthly income, monthly expenses, credit score, prospective down payment and more. Most financial advisors recommend following the 28/36 rule, which dictates that a household should spend no more than 28% of its gross monthly income on housing and no more than 36% on total debt. Tip: Get Pre-Qualified Once you’ve figured out how much house you’re able to afford, you’re ready to start shopping for a mortgage. There are dozens of mortgage options available to first time home buyers in Maine — so many, in fact, that it can be a little overwhelming trying to decide which option is right for you. Fortunately, with your mortgage broker at your side ready to help you evaluate the advantages and disadvantages of each option, choosing the right loan type doesn’t have to be a challenge. Let’s look some of the most common loan types: Common Loan Types FHA loans are a type of low down payment government loan insured by the Federal Housing Administration, a program office of HUD. USDA loans are a type of government loan insured by the U.S. Department of Agriculture’s Rural Housing Program that enables low- and moderate-income households to purchase property in eligible rural areas. VA loans are a type of loan provided by a private lender and guaranteed by the U.S. Department of Veterans Affairs in order to make home ownership more affordable for veterans. Conventional loans are private-sector loans that follow the guidelines set by Fannie Mae and Freddie Mac. Borrowers can choose between 15-year, 20-year and 30-year mortgages. A jumbo (non-conforming) loan is any mortgage that exceeds the conforming lending limits of Fannie Mae or Freddie Mac. Once you and your mortgage broker have determined which loan type is a good fit for your particular situation, you’ll want to get pre-qualified. Getting pre-qualified isn’t a prerequisite for applying for a home loan but it is in your best interest, since it gives you an estimate of how much money you can actually borrow before you start touring houses. In order to get pre-qualified, you’ll need to submit proof of income, proof of assets, your tri-merge credit report and your debt-to-income ratio to your lender of choice. Tip: Don’t Be Afraid to Shop Around a Little Finding the right house isn’t an exact science. It takes time, patience and, for many house hunters, gallons of coffee. That said, having a clear idea of what you’re looking for in a home in advance of your first viewing can help the process move along more quickly. Consider things like where you’d like to live (city, suburbs or somewhere rural), what type of home you’re looking for and how many bedrooms and bathrooms it has to have, what features you’re looking for and what your priorities are. The good news is, given how beautiful Maine is, it’s hard to go wrong finding the perfect home and neighborhood for you. Shopping around doesn’t just apply to houses — it’s important when choosing a lender, too. Prequalification doesn’t lock you into a lender. In fact, you can use your prequalification as leverage when shopping quotes. By working with your mortgage broker to compare mortgage rates, prospective closing costs, discounts and more from different lenders, you could save thousands of dollars over the lifetime of your loan. Tip: Inspect the Home Before the Home Inspection Home inspections typically take place after you’ve made an offer but it’s in your best interest to conduct your own home inspection well before putting any money down. While viewing properties, take a look around: Do the shingles on the roof lay flat or are they curling? Is there any water damage or spots of mold or mildew on the walls? How long does it take for the water in the shower to heat up? How old are the kitchen appliances? These and other questions will help you gauge whether a home is worth making an offer on. Tip: Make a Competitive Offer, But Stay Within Your Budget You’ve found your perfect home, secured a mortgage from a lender, and now you’re ready to make an offer. It can be tempting to go all in right out of the starting gate, especially if there are other offers on the table (after all, you really want that house!), but it’s better to be measured rather than impulsive. Consult your real estate agent; their knowledge of the local housing market and of your financial situation will help you put together an offer that’s competitive, but still within your budget. For a house with competing offers, your agent might even recommend a personal touch, such as a handwritten letter to the seller, to help you stand out from other prospective buyers. Tip: Take Care of Your Investment For some first time home buyers, their first home is their forever home. For others, it’s just the starting point in their greater homeownership journey. Regardless which category you belong to, take good care of your new home. Start building an emergency fund for the unexpected things life will throw your way, such as a broken down refrigerator or a flooded basement, and put in the work to maintain your home so that small problems don’t turn into bigger ones down the line. Your first house is one of the biggest investments you’ll ever make; take care of it, and it will take care of you. Ready to set off on your very own Maine adventure? Blue Water Mortgage can help you get started. In their over 100 years of collective experience, our mortgage brokers have seen and done it all, and can fearlessly lead any home buying expedition, no matter how rough the terrain. Contact Blue Water today to start your journey to becoming a first time home buyer in Maine.