By Stefanie Jackson – The Eastern Shore Regional Housing Coalition is working not only to create more affordable housing opportunities in Accomack and Northampton counties, it’s raising awareness of proven homebuying tips, strategies, and financing options for individuals and families of practically every income.
During an online housing conference hosted by the coalition Aug. 21, realtor Jorge Diaz-Herrera discussed the advantages and disadvantages of buying a home and seven steps for a successful homebuying experience.
Advantages of homeownership include having a growing investment, tax benefits, and fixed costs – and “you feel good about it,” Diaz-Herrera said.
A disadvantage of homeownership is that overall costs may be higher than renting, but those costs are “balanced out” by the tax benefits and investment.
Other disadvantages of buying a home include decreased mobility and the potential risk of foreclosure.
But buying a home also comes with the power of choice: you choose the real estate agent, the home, the bank, the type of loan, the appraiser, and the home inspector, Diaz-Herrera pointed out.
He continued by sharing his seven steps for a successful homebuying experience.
Seven Steps for Successful Home Buying
One, make sure your personal finances are in order. That includes writing a spending and savings plan and managing debt.
Two, keep tabs on your credit score and report. Anyone may request one free credit report per year from one of the three U.S. credit reporting companies, Equifax, Experian, or TransUnion. The report contains five sections and includes how much you owe to individual creditors (like credit card or loan companies) or debt collection agencies.
Three, before you choose a real estate agent, work with a lender to get pre-qualified or pre-approved for a home loan, a “powerful step” in the buying process. Pre-approval is the “stronger” option because it gives you a set dollar amount that you can spend, Diaz-Herrera said.
Four, choose a real estate agent who will help you find a home that’s the right type and size and in the right location. The real estate agent is your “advocate” and will help you get a good home for a good deal. Virginia law states that a buyer and seller must be represented by different real estate agents, Diaz-Herrera noted.
Five, after you’ve seen as many properties as possible and you’re ready to make a deal, “Negotiate, negotiate, negotiate,” Diaz-Herrera said. Start out with a low offer, because you can’t lower it later, he cautioned. The seller then has three options: accept, reject, or counter with a new offer. Negotiations continue between the buyer and seller until a deal is made and a legally binding contract is signed.
Six, hire a licensed professional to complete a home inspection to find any issues that may need future repair. The average home inspection fee is about $350 and will include examination of the foundation, roof, siding, plumbing, electric, heating, air conditioning, ventilation, insulation, doors, and windows. Without an inspection, the buyer acquires the home “as is,” Diaz-Herrera said.
Seven, about 24 hours before closing the loan – meaning the loan agreement is signed – conduct a final walkthrough of the house with your real estate agent. At closing, bring all required paperwork, including documentation of homeowner’s insurance and a cashier’s check for the closing costs (unless they are being paid through a wire transfer).
“Once everything is signed and the funds are collected, we’ll give you the keys and we congratulate you in the purchase of your new home,” Diaz-Herrera said.
Following his presentation, others shared information on how state and federal programs can help people afford to buy homes, and a local bank representative offered additional home-buying advice.
Amy Schwartz, of Virginia Housing (aka Virginia Housing Development Authority or VHDA), gave an overview of services and products that can assist first-time homebuyers.
To make Virginia Housing loans more accessible to residents of rural areas, in 1996, VHDA began its Mobile Mortgage Office program. Instead of making a long trip to a VHDA mortgage office, a VHDA van brings the office to the client’s area. Allen Andrs is the VHDA representative to contact for service in Northampton or Accomack County, Schwartz said.
The VHDA program SPARC (Sponsoring Partnerships and Revitalizing Communities) allocates funding to local governments, nonprofits, and housing industry partners for special housing needs. The goal is a 1% mortgage interest rate reduction for qualified first-time homebuyers.
VHDA also offers qualified first-time homebuyers a Down Payment Assistance (DPA) grant, which covers between 2% and 2.5% of the purchase price of a home and can be paired with either an FHA (Federal Housing Administration) or conventional mortgage loan. The DPA grant can get the buyer’s down payment reduced to as little as 1% of the home’s purchase price.
VHDA offers Closing Cost Assistance (CCA) grants to help cover loan closing costs. The amount of the grant can be up to 2% of the purchase price of the home and can be paired with a home loan from the U.S. Department of Agriculture (USDA) Rural Development program or the U.S. Department of Veterans Affairs.
Most VHDA housing loan programs require the applicant to have a credit score of 620 or higher.
USDA Rural Development
Jeanie Barbrow, of USDA Rural Development, said, “If it’s your dream to be a homeowner … but you possibly cannot get a mortgage from a private lender, you may be eligible for a loan with USDA Rural Development.”
USDA serves low and very-low-income families who want to buy or build a home, and it provides loans for both lot purchase and construction, including modular or manufactured homes.
USDA loan terms range between 30 and 38 years, with an average loan term of 33 years. No down payment is needed and the loan interest rate is 2.5%, although some buyers may qualify for an interest rate as low as 1%.
Some buyers also qualify for subsidies that reduce their monthly loan payments.
Closing costs and home repair costs are included in the home loan, there is no private mortgage insurance or prepayment penalty, and escrow services for taxes and insurance are available.
“As you can see, we make this process as simple as possible,” Barbrow said.
The home must meet USDA’s requirements: it must have less than 2,000 square feet of living space, be located in a rural area, and be on a lot of one acre or less. Lots larger than one acre may be eligible if the lot size is typical for the area and can’t be subdivided.
USDA’s Section 502 Direct Loan Program is its top program, which “provides the path to home ownership for … the families who truly have no other way to make affordable homeownership a reality,” Barbrow said.
“We promote prosperity, which in turn creates a thriving community and improves the quality of life in rural areas, which is our ultimate goal,” she said.
USDA home loan applicants must maintain a stable income for at least two years, and a credit score of 640 or higher is preferred. Applicants who fall short of the credit score minimum may be able to get “alternative credit,” Barbrow said.
Applicants may not already own a home, but an exception can be made, for example, if the family has outgrown its current home and plans to sell it, she said.
A home bought with a USDA loan must be the family’s primary residence, and the person applying for the loan must be a U.S. citizen.
USDA will consider all household income to determine loan eligibility, but only the income of the loan applicant or co-applicants will be used to calculate repayment ability. Debts are also considered when determining the amount of the monthly loan payment.
Very-low-income buyers will pay about 29% of their monthly income for their house payment, and low-income buyers will pay about 33% of their income, with total debt payments not to exceed approximately 41% of income.
Talia Taylor, who works for a home loan company in Onley, offered practical advice for first-time homebuyers:
Get pre-qualified for a home loan before you start house shopping, so your real estate agent can look for properties that will work with your budget.
Think about how much you can afford to pay every month for a house and try saving that much money every month for six months to determine if the payment amount is manageable.
Do not buy a car or take on any other large amount of debt before starting to look for a house, because increased credit inquiries and debt ratios can adversely affect your chances of getting approved for a home loan. Wait until after you are settled in your new home to make those additional purchases.
Don’t carry high credit card balances; pay them down. “It’s amazing how fast people can change their score in a short amount of time if they know what to do,” Taylor said.
If you don’t have a lot of credit, build it up wisely. Get a credit card and use it to buy gas or groceries, then pay it off every month, Taylor said. “Start small and build that credit, and do it the right way.”
Never max out a credit card because “that will hurt your credit more than it will ever help it,” she said.
Private banking institutions often give free classes that help customers manage their finances. “If you just reach out, there are so many things we can help you do … that’ll get you on the right track,” Taylor said.
“Come and sit down and talk to us if you’re on the Eastern Shore … we love doing that … and helping people.”
To contact Talia Taylor, call 757-302-4009, or stop by her company’s office at the Onley Town Center at 25020 Shore Parkway.