Never purchased a home in the Fairbanks Alaska Area before?
You need to know the risks you face as a 1st time home buyer in Fairbanks, Alaska or the surrounding areas. If you fail to look at these things, you may waste a lot of time ‘spinning your wheels’. Here are 5 major issues to cover when deciding to buy your dream home.
Finances
Before we look at the nitty gritty, lets make sure financially you can foot the bill without havings to struggle. Beyond financing and your ability to repay the mortgage, answer yourself this: How much of a monthly payment can I afford?
Often times we see people in an effort to ‘buy their dream home’ before they really afford it end up having it be the biggest burden in their life. Before long their dream becomes a nightmare of sleepless nights as they wonder how with all of the unexpected expenses that come up with homeownership, can they make the mortgage at the end of the month.
The best way to know your ‘threshold’ of a monthly payment which includes every cost associated with your home is to take your monthly income and cut it into one third. So if you make approximately $4,500 per month then your total payment should be no more than $1500 per month.
But don’t stop there because that payment needs to include not just the mortgage principle and interest. You need to factor in Homeowners insurance, Property Taxes, Possible flood insurance if you are in a flood zone that requires it.
This could be by itself another 200-300 per month or more if the price and size of the home is above average.
Utility Costs
Remember that the next part to this is the utility costs. Heating the home in the wintertime can literally bankrupt a family that doesn’t have the proper reserves to pay for heating fuel in January. With heating fuel prices ranging from 4-5 dollars per gallon… Some heating bills in one month could be as much as the mortgage payment itself.
As with everything in the Fairbanks Alaska area, so many things follow the ‘seasonal cycle’. The winters can be long, dark and costly to heat your home and keep your vehicle running. Then in the summertime you may not turn on your heat for over 2 months.
So depending on the month, the bills can range drastically based on what you are using. Water bills can be much higher in the summer as you are watering your lawn or garden. But the heating bill may be non-existent. The best way to approach this is to look at the yearly costs of your utilities and make sure you have at least 6 months in reserve at all times at the bare minimum.
Down Payment
Traditionally, lenders required 20% down of the total purchase price to secure a home loan. However checking with your lender you may qualify for special first time home buyer loans that only require 3-5% of the purchase price. Usually these loans are much more strict in their guidelines of what properties will qualify for a home loan.
Yet, most homes within the ‘city limits’ are compliant with these special programs. The two programs most commonly used for 1st time homebuyer financing are the popular ‘FHA’ (Federal Housing Authority) loans. Then on top of that the more stringent ‘AHFC’ (Alaska Housing Finance Corporation) loans.
Then of course for the military family, you can use your ‘VA’ loan. (Department of Veterans Affairs) which is loan that allows you to finance the full amount of your purchase price as well as most of, if not all of your closing costs. Although this is a great option, just remember that if you plan to relocate somewhere else in 2-3 years. You may still be “upside down” in what you owe on your home because in most cases you will be financing 102% – 104% of the purchase price. So selling your home in a few years may prove to be quite tough as you won’t have much wiggle room to pay off your loan.
VA loans were a great thing when home prices kept rising. However for the usual 2-3 year ‘military rotation’ can prove to be challenging in an unstable market.
The good news is as it stands now the Fairbanks area market is stable and properties are selling for just over 97% of listing prices. Its a very healthy market with a stable and slightly upward trend. So you may be just fine with a VA loan.
Closing Costs
Your lender will be able to explain the details to you, however we have found that most closing costs are going to be on average about 2-4% of your purchase price given customary closing costs. If you are using FHA Financing where your down payment is in most cases 5% then you can expect to add that to the 2-4% for a total of 7-9% of the purchase price.
So if your home costed $175,000 then you would expect to take that price and use a calculator to find 7-9% of that price as a best estimate of your closing costs. (Unless VA of course where most if not all of your closing costs are rolled in)
So in the example of 175,000 we could expect at 7% about $12,250 or at the upper estimate of 9% would be $15,750 in total money brough to the table to close.
Earnest Money
First off, earnest money although usually put down as a show of good faith when submitting an offer to a seller for a property would be credited to your total closing costs. However sellers require usually 2% of the purchase price of your offer. Unless it’s a VA offer where usually about a $500 to $1000 is customary because the loan is guaranteed by the VA and almost all closing costs are financed.
So if you put an offer on a property at $175,000, you would usually write a check for $3500 to be deposited into an escrow account with your realtor’s office. They are required by law to carry these accounts and they operate on strict guidelines where that money cannot be comingled or combined with other accounts. So that in the event that the deal falls through, the money can be returned to the deserving party.
Summary
All in all, when you know what to expect when starting the home searching process. Look at these 5 major things to determine if you really are ‘ready’ to make the leap into home ownership. The hidden costs that go into home maintenance should also be taken into consideration. If you truly dream of owning your own home, then make sure you are prepared so that it doesn’t turn into a nightmare
We’ll see you next time!
Paul and Debbie Coben
Re/Max Associates of Fairbanks
email us here
105 Chase Adak Ave
Fairbanks, Alaska 99701
Phone: 907-452-6387
DEBBIE CELL – 907-590-9669
PAUL CELL – 907-590-9668
