Unlock the door to home ownership

What you need to know before you buy your first home in New Hampshire

Feeling drawn to the “for sale” signs in the neighborhoods you’d like to live in? Tired of helping pay someone else’s mortgage, or wishing you had more space to accommodate your growing family?

Whatever your reason, buying your first home is a big decision. After all, it will likely be the largest purchase you ever make. New Hampshire’s median house price is $285,900, while some counties such as Rockingham ($380,000) and Hillsborough ($300,000) command even higher prices, according to the New Hampshire Realtors’ March data snapshot.

If you are a first-time homebuyer, you are in good company. According to the Federal Housing Administration and Urban Institute, first-time homebuyers will continue to outnumber repeat homebuyers. Thanks to a strong economy and
historically low interest rates — along with loan programs that support first-timers — you can open the door to homeownership.

How much house can you afford?

Your dream might be to own a four-bedroom Colonial with a two-car garage in the Seacoast, but your wallet might not agree. That’s why it’s important to understand how much house you can buy before you set your heart on your dream home — or worse, buy a house you really can’t afford.

There are five major factors that determine if you qualify for a home loan, how much you can borrow, and at what interest rate:

  • Debt-to-income ratio
  • Credit history and credit score
  • Employment history
  • Savings
  • Down payment

It’s important that you understand how your current income, debt, and savings factor into your ability to secure a mortgage, said Matthew Gallant, a real estate lending specialist with Service Credit Union, New Hampshire’s largest credit union.

“Getting prequalified for a loan is like getting Willy Wonka’s Golden Ticket,” Gallant said. “Realtors may not even want to show you a house if you can’t afford it; it sets you up for disappointment and can waste valuable time in your house hunt. The best course of action is sitting down, figuring out what your lending power is, and then having your agent work with your lender to ensure you are on the correct path.”

Gallant last year started a program called Homebuying on Tap, aimed to help first-time homebuyers get their questions answered in an informal setting.

During these informal classes held at taverns throughout New Hampshire in the evenings, Gallant talks to attendees about credit, budgeting, and income-to-debt ratio (which is your monthly debt, including your car payments, student loans and credit card debt divided by your income, with the addition of your potential mortgage).

The program draws anywhere from 10 to 15 people, who can enjoy a beverage and ask questions without feeling pressure. Low-stress and social, Homebuying on Tap helps first-time homebuyers learn the nuts and bolts before they seek out lenders or real estate agents, Gallant said.

“We spend very little time discussing the actual mortgage products, as we would rather give them valuable information to get them set up to apply for a mortgage,” he said.

Helping buyers, including millennials, look at the bigger picture is key to getting them to understand just how much house they can afford. For example, although the income-to–debt ratio should hover no higher than 43 percent, it’s important for prospective buyers to understand that the report does not include other key expenses such as child care, groceries, and gas, Gallant said.

“There is a term I use called ‘real’ debt-to-income ratio that includes those numbers that I can’t look at when reviewing a mortgage application but I ask my attendees to keep those in mind when they are considering their personal budgets,” he said.

Bank on the right mortgage

Not every loan is created equal, which is why buyers need to communicate their short- and long-term goals to their lender, said Nancy Monbouquette, New England regional manager for the mortgage division at Citizens Bank.

While interest rates on 30-year-fixed-rate loans provide security, most people do not stay in their homes for 30 years. In fact, the average lifespan of a loan is around seven years. Working with your lender, you can decide what product works for your budget and lifestyle, she said.

Fixed mortgages (usually for periods of 15, 20 or 30 years) have the same interest rate each year of the loan. Adjustable mortgages, which usually have slightly lower rates than fixed mortgages initially, adjust with the market after a certain number of years, and usually adjust to a higher interest rate after a term of five or seven years.

“That said, a 5-1 ARM or 7-1 ARM is not for everyone; a lot of people like to know they are going to have security,” Monbouquette said.

Rates are still historically low, no matter what loan you ultimately decide upon, allowing new homebuyers to afford a bigger mortgage. As rates go up, you might find you qualify for a lower
mortgage amount. They can change quickly, which is why it’s a good time to buy if you are looking, she said.

For first-time homebuyers with low- to-moderate incomes, the New Hampshire Housing Finance Authority offers programs to help them purchase a home. These home ownership programs align with New Hampshire Housing’s mission to promote, finance and support affordable housing in the state. Its products support first-time homebuyers earning up to $126,700. New Hampshire Housing partners with a group of participating lenders around the state to make its loan products available.

Andrew Cadorette, New Hampshire Housing’s home ownership manager, said education is the key to finding the right loan for a buyer. As such, the organization provides and supports both face-to-face and online educational and financial counseling programs to outline programs (see sidebar).

Buyers should always feel in control and never feel pressured to take out a loan or close on a house that they don’t feel comfortable purchasing, Cadorette said. One way to find out whether your new mortgage, taxes and house insurance payment is going to cramp your style is to try “paying” it before you spring for a new home.

“For example, if you get approved for $1,200 but you are living with your mom and paying $600, try that payment out and put $600 in the bank every month for six months and save $3,600 toward your down payment,” he said.

The New Hampshire Housing home ownership website has information about programs, homebuyer resources, calculators and educational videos at GoNHHousing.com.

Credit unions like Service Credit Union also offer their own special programs including one that offers a low-rate adjustable mortgage, with adjustments capped over time, Gallant said. It also offers another that allows for zero percent down. Veterans can take advantage of VA home loans, which offer a no-down payment, fixed loan with certain credit requirements.

Citizens Bank and other banks work with buyers to secure FHA loans, traditional first-time homebuyers’ loans and other products exclusive to their banks that fit the customer’s need, said Monbouquette. Citizens Bank’s Destination Home Mortgage, which has income requirements, allows you to put 3 percent down without having to pay mortgage insurance, for example.

The loan qualification process is easier now, too, thanks to advanced technology, which affords first-time homebuyers the opportunity to fill out applications and upload documents online to get prequalified for a loan much more quickly.

“On a weekend, you can prequalify even if your bank branch is closed. The loan officer can send you an application, you can fill it out, we can pull your credit, and you can receive your pre-approval pretty quickly,” Monbouquette said.

Build a solid foundation with your real estate agent

Many first-time homebuyers walk into an open house and meet the agent behind the table, eager to learn more about a property. However, it’s important to understand that the open house agent is representing the seller in this case. What buyers are really looking for is a buyer’s agent, or an agent who will represent them in the sales transaction, said Heather Stasiak, owner of Studio H Real Estate, LLC, which has offices in Exeter and Dover in New Hampshire. How do you go about finding a buyer’s agent?

“Millennials are big into online recommendations for restaurants and other services, but when it comes to a home they know — as other folks do, the best way to find a realtor is through word of mouth,” Stasiak said. “Go to people you trust who have bought before and ask them who they would recommend. Find someone who is passionate about educating you on the process.”

When you begin working with your agent, you should first establish a relationship and then you can expect to sign a buyer agency contract. You will go over the contract terms and conditions (such as how long you will work with that buyer, and the terms of the commission payment, which the listing agent usually splits with the buyer’s agent) with the agent.

Lenders and agents often work closely together on deals, which is why you should find a pair who you trust, as you will be working closely with both people for the next few months, she said.

“We are very much in touch with the lender throughout the process, from the starting introduction and pre-approval of the buyer to the final closing numbers and the closing itself,” Stasiak said. “The agent-lender relationship is crucial, which is why it makes it easier for all if the buyer chooses a loan officer that their realtor recommends or vice versa.”

Studio H Real Estate employs 21 agents and holds classes to educate buyers, but Stasiak said she likes to work one-on-one with buyers to really understand what they are looking for. Then, she works with the buyer to craft a plan — including house “must-haves,” determining how much renovation work a buyer is willing to do (if any), and what other variables are important — such as school district, city services, length of commute to work, and tax rates.

Be prepared for a few New Hampshire quirks

Amy Carr, an agent with Great Island Realty, works with partner Crystal Ducharme in the Seacoast and urges buyers to be as prepared as possible when they start looking.

In towns close to the coast, there is limited inventory and bidding wars have become the norm once again. Having both a pre-approval letter and personal letter in hand for the seller can help your chances, she said.

Also, apps like Zillow, Trulia, and Realtor.com don’t always provide the full picture of what is available on the market. Although it’s good to take a peek to see what you might be interested in, it’s even more important to talk to your agent about what’s important to you so that they can start talking to other brokers to help you find properties before they hit the internet.

“We help buyers learn as much as they can about each community before they make a final decision. Oftentimes that means we look at homes in many towns to narrow down which ones feel right to our buyers,” Carr said. “For growing families, finding a home with extra space that can be finished later (i.e., a basement or third-floor walk-up) could be an important factor, too.”

Tax rates in New Hampshire vary widely from town to town and can add a substantial chunk of money to your overall monthly payment. For example, Newington’s tax rate of $9.29 per thousand pales in comparison to its neighbor, Portsmouth, which has a tax rate of $27.52 per thousand.

“This is such a tough piece for buyers, as many of the towns with higher taxes are the towns that have more affordable homes,” Carr said. “There are times when the price may be right, but the taxes make that home out of reach.”

Other quirks:

  • No matter where you live in New Hampshire, you won’t pay income tax if you live and work in state. If you (or your spouse) do cross the border to work in Massachusetts or Maine, it still might be advantageous to live in New Hampshire, but you won’t get the full New Hampshire tax advantage.
  • Some towns (like Dover, Somersworth and Concord) require you buy trash bags to help defray the cost of trash pickup. Other towns offer no trash pickup at all — to dispose of your garbage and recycling, you might instead need to visit the town’s waste disposal center.
  • Nervous about having your septic system pumped? Can wells really run dry? While some cities and towns include municipal water and sewer hookups, others require you to manage your own well and septic system.
  • Depending on where you live in New Hampshire, your public utilities carriers might also be different. For example, some towns are serviced by Eversource and others by Liberty or Unitil. The same goes for internet and cable services: make sure you know ahead of time if your preferred provider services the town you potentially want to live in.
  • School systems and what they offer also vary widely. If it’s important for you that your city or town has its own high school, do your research. You can see what high school your student would attend by checking out the New Hampshire Department of Education site: www.my.doe.nh.gov/Profiles/PublicReports/PublicReports.aspx?ReportName=HighSchoolTowns
  • Police and fire comprise large portions of town budgets. In fact, some towns run part-time departments, or even staff them with volunteers. If service from full-time police and fire departments are important to you, avoid searching for houses in towns that do not have these.

Krysten Godfrey Maddocks has worked as a journalist and a marketing director, and now regularly writes for higher education and technology organizations in New Hampshire and Massachusetts. Mom to 4-year-old Everett, she has lived on the Seacoast for the past 20 years.

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