Repeat and First-Time Homebuyer Guide

 

When it is time to buy a home in St. Charles County or St. Louis County, your selection of a REALTOR® is a very important decision.

 

You've made the decision to buy a home, now what? It's simple. Give us a call.

• On this page is information updated for 2024 that you will find useful, and if you are working with us - we'll provide guidance every step of the way towards your goals.
• If not, this information will help you understand the process, expectations, and answer some questions you may have.

Dave Schott - Buyer's Agent

• Dave Schott received his Missouri Brokers license in 1985 and enjoys helping clients reach their real estate goals. Read about Dave Schott
• Dave and the Broker/Owners of MORE, Realtors bring over 100 years of real estate experience to benefit you - and both Owners were elected President of the local St. Louis Association of REALTORS® (over 10,000 members) - we provide you the utmost in integrity and experience.
• Our goal is to be informative, transparent, responsive, and deliver results.
• Buy a home with confidence - The Schott Group and MORE, Realtors

A Step-By-Step Guide to the Home-Buying Process

Buying a home is a significant milestone in one's life, and the process can be both exciting and challenging, especially in a highly competitive market.

For those considering purchasing a home in the St. Louis, Missouri area, understanding the local real estate market and navigating the steps involved is crucial. It typically takes about 30 to 45 days to close after an Offer has been accepted.

• It is common for buyers to use loan programs that allow for down payments as low as 3-5% plus closing costs.
• The National Association of Realtors (NAR) states that the average down payment on a house for first-time home buyers is 6% versus 17% for repeat buyers in 2022.

I created this comprehensive guide to walk you through the process of buying a home in the St. Louis area, providing valuable insights and tips to make your homebuying journey a smooth and successful one.

Below is a brief overview with links for additional details to help you feel comfortable and confident in the process.

 

• If you're paying $1,500 per month for rent, in 5 years you will have paid $90,000+.

• As shown in the below chart from MARIS MLS, median home prices have increased an average of about 3.2% per year  - Jan 2008 to Jan 2024. On $300,000 that is about $10,000 per year.
  

• This is historical data and does not predict or guarantee future home prices. For illustration only.

The below chart is interactive - Touch for Data Points

Steps to Buying a Home

1. Financial Readiness and Credit Report Errors

Financial preparation marks the initial phase in the homebuying journey. This process enables you to identify a suitable price range within your budget before looking at homes. Additionally, it aids in determining the required funds for purchasing a house.

Beginning your home search in a higher price range may lead to disappointment if you do not qualify. Homes in a higher price bracket often offer superior features, including desirable locations, larger sizes, and amenities.

Some individuals might assume their credit is sufficient for homebuying because they've never missed a payment.

On the other hand, some may hesitate to check their credit, fearing it's so poor they won't qualify. However, both assumptions could be inaccurate.

Regardless of your situation, it's essential to examine your credit history and understand your credit before embarking on the homebuying journey.

• Your financial habits, whether good or bad – all that matters is what is reflected in your credit history (from all 3 credit bureaus). If you identify inaccuracies, it may be necessary to address them before purchasing a house.
• In a study by Consumer Reports in 2021, 34% of the credit reports had some type of an error.
• Prioritize checking your credit history before proceeding with any other steps to avoid wasting time in the process. Correcting errors on your credit report can take three months or longer, and discovering this after starting your home search can be frustrating.
• I can refer a LOCAL lender who can provide all 3 of your credit reports and FICO scores - with no obligation.
• Online credit score websites do not provide mortgage scores and are NOT accurate.

2. Determine How Much House You Can Afford

When you're ready to purchase a home, it's essential to establish a budget. Start by calculating your debt-to-income ratio, factoring in current debts and income. Consider how much you can reasonably allocate each month towards a mortgage.

• The debt-to-income (DTI) ratio is a pivotal aspect that mortgage lenders evaluate to gauge the disposable income in your budget for a monthly mortgage payment.
• Reviewing your DTI before applying for a loan is a prudent step in the homebuying process.

To determine the affordable monthly mortgage amount, begin by examining your annual earnings before taxes. Include all sources of income for the year, such as salary, wages, tips, commission, and more.

If you share finances with a spouse or partner who will also be on the loan and whose income will contribute to the monthly mortgage, incorporate their earnings into the gross annual income for your household. Subsequently, divide your annual income by 12 to establish your monthly income. Then calculate your monthly debt payments. Learn More About DTI and How Much House You Can Afford.

 

3. How Much Money You Will Need

Whether it’s a starter home, a forever home or a vacation home, buying a house is an exciting endeavor. But there’s no doubt that this life-changing purchase can also get expensive, especially when you consider that this is likely one of the largest purchases you’ll ever make.

• Contrary to common belief, it is not necessary to have a 20% down payment to buy a home, there are many loan programs that allow a 3-5% down payment. Plus, a down payment of that size is often not possible for many first-time buyers.
• When the down payment is less than 20%, Private Mortgage Insurance (PMI) is required to be added to the monthly payment. PMI protects the lender in case of loan default.
• PMI Example: $300,000 purchase price with 5% down - Conventional monthly PMI cost is $50 to $100+ and FHA with 3.5% down will be about $130+ per month. (PMI is determined by credit score)

The home-buying process involves numerous steps, and it is not uncommon for first-time homebuyers to overlook various expenses associated with the purchase.

• To assist you in this financial planning, click on the below link to view a detailed spreadsheet breakdown of  the major costs related to buying a home, with an example of what you can expect to spend on a $300,000 property. 

You will need money for the following:

1. Earnest Money
2. Inspections
3. Down Payment
4. Closing Costs
5. Prepaid Costs
6. Possible Other Costs

View Details and a Spreadsheet for How Much Money You Will Need

 

4. Sources for Down Payment and Closing Cost Funds

When purchasing a home, one of your biggest challenges may be providing the funds for a down payment and the closing costs.

• The National Association of Realtors (NAR) states that the average down payment on a house for first-time home buyers is 6% versus 17% for repeat buyers in 2022.

This transaction represents a significant financial commitment, and you might be uncertain about how to proceed.

• Below are acceptable sources for most types of loans.

1. Savings and Investment Accounts
2. IRA Account
3. 401(k) Account
4. Borrowed Funds Secured by an Asset
5. Sale of Personal Assets
6. Down Payment Assistance Programs
7. Gifts
8. Anticipated Sales Proceeds from Current Home
9. Seller Paid Closing Costs
10. Bridge/Swing Loan
11. Employer Assistance Programs
12. Cash Value of Life Insurance Policy
13. Trust Accounts
14. Lender Credit (Premium Pricing)
15. Cash You’ve Saved at Home

Learn More Details About These Sources and Lender Guidelines

 

5. Choosing a Buyer's Agent

Buying a home, especially in the St. Louis, MO housing market, can be more complex than it appears, especially for newcomers.

While the wealth of online information and ease of home searching may seem enticing, relying solely on these resources may not be the best approach. It's crucial not to go it alone.

• With years of experience and a track record of successfully selling hundreds of properties, we possess the expertise to guide you seamlessly from your current situation to your desired outcome.
• As seasoned professionals in residential home sales, we'll not only enhance your home buying experience but also share strategies to help you save money throughout the process.

You should feel fully informed about all your options and have a dedicated advocate fighting for you whenever needed.

A top-notch buyer’s agent will streamline the complex home buying process, making it feel like a simple transaction for you.

• Below are Important Topics to Review

1. Buyer Agency Basics
2. What You Should Know About Buyer Agency
3. Buyer Representation: FAQ
4. Will Working Directly With the Listing Agent Help a Buyer?
5. Buyer’s Agents: Can Give Homebuyers a Competitive Edge
6. Should I Use Multiple Agents
7. Key Areas Where a Buyer’s Agent Can Offer Assistance

Learn More Details on the Benefits of Working With a Buyers Agent

 

6. Important Considerations When Choosing a Lender

If you are on the hunt for a house and in need of a mortgage, you have likely encountered repeated advice stressing the significance of choosing a local lender.

Purchasing a home is typically one of the most significant investments individuals make in their lifetime.

• Beyond securing a favorable interest rate, selecting the right mortgage lender entails finding one that is reliable, accessible, and prioritizes your best interests.

Mortgage lenders vary in their structures and offerings. While the familiarity of national lenders, your local bank, or the convenience of online options may seem appealing, there are compelling reasons to consider working with a local mortgage lender.

Learn More - 9 Considerations You Should Know When Choosing a Mortgage Lender

 

7. Get Pre-Approved for a Mortgage Loan

If you're like most home buyers, financing will play a role in your purchase. An essential step early in the home buying journey is obtaining a mortgage pre-approval.

This involves working with a mortgage professional who will verify your income and assess your credit history. Through this process, you'll gain insights into anticipated closing costs and monthly payments.

• Unless you're purchasing with all cash, securing a pre-approval from a lender provides an official confirmation of your home buying budget.
• In today's highly competitive housing market, most sellers require this document to even consider your offer.
• Following a cash buyer, sellers typically prioritize pre-approved buyers or, ideally, those whose loans have undergone underwriting, only subject to an appraisal, evidence of acceptable title insurance, and standard conditions.
• I can recommend lenders who will underwrite/approve your loan based on credit, income, and assets - this approval is viewed more favorably by sellers and their agents than a standard pre-approval.

Click on the below link to review the following information.

1. What is a Mortgage Pre-Approval
2. Why You Need a Mortgage Pre-Approval
3. The Difference between Pre-Qualification, Pre-Approval, and a Underwriting Approval Letter
4. What to Expect When You Apply
5. Documents Needed Checklist
6. Pre-Approval Do's and Don'ts

Learn More Details - What to Know About Getting Pre-Approved for a Home Loan

 

STEPS 8 TO 15: THESE PAGES ARE UNDER CONSTRUCTION AND WILL BE ADDED HERE IN SEPTEMBER 2024

IN THE MEANTIME

• Please contact Dave Schott with any questions or to start the home buying process. Call/Text  (636) 489-1820 or submit Contact US form.