Buying Your First Home in Monterey
If you are paying rent in Monterey, you might be frustrated by the amount of money going toward the property owner’s mortgage. With such high rents, you might even be covering their mortgage, or exceeding it. They may own the property outright, and if that’s the case your monthly rent is contributing significantly to their positive cash flow. Are you considering buying your first home in Monterey? Even if you are not quite ready to buy, it’s good to start thinking about your options. Owning a home is a desirable goal for many reasons – a few of those reasons include:
- The flexibility to make the changes and updates that suit your preferences and lifestyle
- The ability to build equity over time with monthly mortgage payments rather than renting
- Having a growing asset in a strong market of high demand
Down Payment and Monthly Mortgage | Buying Your First Home in Monterey
One of the questions about buying a home that many of our first time buyers ask us is “How much of a down payment do I need to get into the market?” A common myth is 20%, but with the many loan programs available to you, there are options as low as 3.5% with an FHA loan. Buying a home with less than 20% often results in paying Private Mortgage Insurance (PMI) and we can calculate those costs for you at your request since each loan is different. The bottom line is – you can be a homeowner with less that 20% down, then refinance after you build enough equity in the home to cover the 20% down. Once you reach 20%, you no longer have to pay PMI. Refinancing is also an exciting thing to do because it reduces your monthly mortgage payment. The more equity you have in your home, the less your monthly mortgage payment will be. Here’s an estimate of what your payment would be with a 3.5% FHA loan. Interest rates are going up this year, but historically, they are still very low. We’ll use 4.25% as an example. For FHA loans, the PMI is actually known as MIP – Mortgage Insurance Premium. P & I is your Principal and Interest – the bulk of your mortgage, and at this price point of $300-400k on the Monterey Peninsula, many of the homes are condos, so we included a $275 monthly Home Owners Association fee for the example. Condominium complexes usually have a HOA fee for grounds maintenance, exterior care, and sometimes roof and financial reserves. Every HOA is different, and each will cover different things. We’ll help you gather that info for the properties you like. You’ll also notice a figure below for taxes – property taxes are paid biannually and are 1.1% of the purchase price in our market. You’ll also need a homeowner’s insurance policy, but excluded that from this example. We can provide quotes at your request.
Getting Pre-approved | Buying Your First Home in Monterey
The above was just one example of a loan for first time buyers looking to get into the market. You may have more money available and wish to put down 7% or 10% – there are many loan products, and you should speak with a loan officer to find a product that will work best for you. You might already have a relationship with someone, but if you are looking for our recommendation, we refer our buyers to Chad Hawker with Guaranteed Rate.
Your loan officer will help you figure out how much house you can afford, and will issue a pre-approval letter. It’s important to have this letter ready so that when you find a home, you can present it with your offer indicating to the seller that you are qualified for this purchase. If you wait to get pre-approved until after you find the house of your dreams, you might miss out on the house because another buyer loved it and had their pre-approval ready to go. It can take a few days to get the pre-approval depending on how fast you give your loan officer the tax documents and financial information they need.
Looking at Homes and Determining Values | Buying Your First Home in Monterey
Once you have your pre-approval letter, you are ready to look at homes in your price range. Discuss with your agent the most important features when it comes to your real estate preferences. A few important things to consider:
- Location – Where do you work? Where do you spend your free time? What amenities do you want to have nearby? This might be the most important criteria in your decision making process.
- Space – How many bedrooms and bathrooms do you need? Do you have any pets? Is a big yard important, or do you prefer something a little more low maintenance?
- Condition – Are you looking for a big project? Or maybe something livable, but dated that you can add value to over time? Would a turn key home be a better fit?
- School District – Do you have kids? If not, do you plan to? A good school district is not only a benefit for children, it’s great for long term resale value.
When you have identified a home that interests you, take some time to review the comparable home sales and active comparable listings with your agent. In this market, these comparable homes don’t necessarily have to be on the same street. We use neighborhoods due to our low levels of inventory and because our market is not full of cookie cutter houses – each home has its own nuances in character that make it unique. A good agent will provide you with a comparative market analysis for the home you are considering buying to help you determine an appropriate purchase price.
Escrow and Negotiations | Buying Your First Home in Monterey
Aside from price, you should consider the terms of your offer. How long do you need for due diligence? Due diligence usually includes inspections and an appraisal, which we coordinate for our clients. A home inspection and pest inspection is a good start to give you an idea of areas that may need further attention from other vendors. Standard due diligence period is 17 days, and we work quickly to stay on track, but you can ask for more time if needed. A loan contingency period is usually 21 days. Total escrow length is usually 30-45 days.
Once you are in escrow and you have had your inspections, you have an opportunity to re-negotiate with the sellers. If you found something out about the home you didn’t know before your due diligence period, you have a chance to negotiate repairs or credits with the sellers. Your agent will guide you through this as necessary.
Your loan officer will keep you current throughout the process of how your loan approval is coming along. You and your agent should keep current with your lender so that everybody is up to date and on track with the escrow schedule. Once contingencies are removed, it’s time to wire the rest of the money into the escrow account and finalize the purchase. You sign loan and title documents giving you ownership of the home, and then escrow closes. The seller pays the commission to the Realtors involved, and the house is yours. Congratulations!
This guide is very general as every home and every escrow is different, but this should give you an idea of the home buying process if you are looking into buying your first home in Monterey. Let us know if you have any questions, and here are a few homes on the market in Monterey.