How to Buy a House in Maine: A Homebuyer’s Guide

Hiring a real estate agent can help you find the right home based on your needs and budget, making sure that you are paying a reasonable price based on the current market. They can also spot any potential problems that you might come across during the homebuying process.

Here are some tips on finding a real estate professional that has extensive knowledge about homes in your price range:

• Get referrals from friends and family
• Verify the agent’s licensing, experience and training
• Hire an agent that is preferably from the local area
• Consider agents who have sold homes in your price range
• The more transactions they have in the last year, the better
• Ask for their references, past and recent sales and customer reviews
• Compare rates between three or more agents

The cost of living is another important factor to consider when buying a home in Maine. Note that the cost of living in Maine averages around $2,018 per month for a one-person household and about $4,629 per month for a four-person household. This is slightly more expensive compared to other U.S. states.

Before purchasing a home, you want to make sure that you include the following basic expenses in your budget:

• Food
• Healthcare
• Utilities
• Education
• Entertainment
• Transportation

The cost of living varies between cities in Maine. To find out your expected costs, you can use MoneyGeek’s cost of living calculator.

The cost of living also varies widely between cities in Maine. For instance, the cost of living in Bangor is only $1,596, whereas the cost of living in Portland is $2,444.

While living in the suburbs usually means lower costs, you may have limited access to hospitals, schools and shopping malls. On the other hand, having access to these social amenities while living in a city might mean higher living expenses but added convenience.

You’ll need to decide what is more important to you in terms of amenities vs. budget when choosing what neighborhood to live in as you search for homes in Maine.

Mortgage options come in different types, each with a different set of criteria, including minimum credit score, income and debt-to-income ratio. For instance, VA home loans are offered to veterans and active service members only.

We listed down the average APR rates in Maine based on the type of 30-year home loan:

• Conventional home loans: 6.0%
• VA home loans: 5.8%
• USDA home loans: 3.3%
• FHA home loans: 6.0%

The above APR rates are based on a 30-year fixed-rate term. A shorter term may mean lower APR rates and vice versa. Ultimately, changes in rates are based on the home loan type, the borrower’s creditworthiness and other factors.

Calculating your mortgage payments can help you determine your price range when shopping for a home. You can use MoneyGeek’s Maine mortgage calculator to calculate your mortgage payments, including principal, interest, property taxes and costs.

It can also help to choose a mortgage loan type that is suitable to your financial situation. MoneyGeek’s FHA vs. conventional home loan calculator can show you how much you can expect to pay when you choose a conventional home loan vs. a government-backed mortgage.

Being able to compare upfront costs, APR rates and loan limits allows you to decide on a mortgage option that fits your budget.

Lenders determine your risk to help them decide whether or not to accept your mortgage loan application. They evaluate the following factors:

• Credit score: Borrowers with higher credit scores are able to get lower interest rates and higher loan limit offers as opposed to borrowers with low credit scores.
• Income: Having a higher income gives you a higher chance of qualifying for most conventional home loan offers.
• Debt-to-income ratio (DTI): Some lenders may set a certain DTI limit when determining a borrower’s eligibility. Having a high debt-to-income ratio may decrease your chances of qualifying for a mortgage.
• Down payment: This is the amount that you need to pay upfront, usually 20% of the total cost of the home. The higher the down payment, the lower your monthly payments and the better your interest rate.

A down payment is the initial cost you must pay when purchasing a home. Conventional loans typically require a down payment of at least 20%, whereas other types of loans may require a down payment of around 3.5% of the total cost.

There are other options in Maine, including VA and USDA loans, both of which require no down payment. However, these are not available to everyone. They are only available to residents of eligible rural areas and those who meet certain income requirements.

The amount you put down affects your interest rates and monthly payments. Typically, putting a large down payment means lower interest rates and lower monthly payments.

Not everyone can afford a 20% down payment on a huge financial expense such as a home. Future homeowners could wait and save up if they aren’t in a rush. Otherwise, they could get private mortgage insurance (PMI) as an alternative. PMI protects the lender in the event that the borrower defaults on their payment.

Private mortgage insurance is often required in conventional loans but not in government-backed loans.

• Conventional loans: PMI is required if you’re putting less than 20% down.
• FHA loans: PMI is not required (may pay upfront mortgage insurance premium instead.)
• VA loans: No PMI required.
• USDA loans: No PMI required (may pay a guarantee fee instead).

Down payment assistance programs in Maine can help residents that are buying their home for the first time or those who have not owned a home in the past three years. The following down payment assistance programs in Maine could help you purchase a home:

• MaineHousing First Home Loan Program is ideal for first-time homebuyers of new and existing single-family homes who are looking for a low fixed interest rate mortgage.
• MaineHousing Advantage Program is a down payment and closing cost assistance option that funds up to $5,000.
• The U.S. Department of Housing and Urban Development provides low-income earners with housing assistance so that they can find alternative programs that can help them financially on the path to homeownership.

Your lender may request documents such as your personal and financial information in order to assess your eligibility. You might be asked to provide information about your income, credit history and debt-to-income ratio.

Other types of mortgage loans may require other documents, including:

• Driver's license
• Social Security card
• Current pay stubs
• Three years of tax returns with W-2s
• Bank account statements
• List of credit cards and debts

If you are self-employed, you could be required to provide information about your business, such as year-to-date profit and loss statements and statements of unpaid accounts receivable.

Depending on the complexity of your finances, your lender may take some time to review your application and grant you a pre-approval letter. It may take up to 10 days to receive your pre-approval.

Beyond that, your pre-approval may only last up to 90 days, so it’s important to only apply for pre-approval if you are ready to buy a home. This will help you not have to apply multiple times, which could hurt your credit score.

A pre-approval letter often proves your capacity to move forward with a home purchase. When you submit an application, your lender will look at your financial information to assess their risk of granting you a home loan. A pre-approval letter means that a lender is willing to fund you with a specified amount.

Take note that pre-approval letters are only valid for 30 to 90 days, as these are often based on your current financial profile. Hence, it is advisable to buy a home only when you’re fully decided. Once your pre-approval expires, you will have to obtain a new one.

You can get as many pre-approvals as you want, but be aware that each one you get requires a hard credit inquiry which could hurt your credit score.

Finding serious damage on a home during a home inspection protects a buyer from any penalty or fees within a provided timeframe should they decide to withdraw a purchase offer.

Hiring a registered home inspector ensures that you’re getting a detailed and more accurate report of the condition, including any safety issues, major or minor defects of your chosen property and even what items are needed to be replaced or repaired.

Home inspections should cover, but not be limited to, the following:

• Grounds
• Exterior Surfaces
• Windows, doors and wood trim
• Roof and attics
• Foundation
• Windows and doors
• Surrounding grounds
• Attic and basement
• Heating and cooling systems
• Plumbing system
• Electrical system
• Major appliances

Currently, there are no home inspection requirements in Maine. However, without a proper home inspection from a professional, there could be many things that could go wrong and cost you substantial amounts of money down the road. Getting an inspection is a prudent financial decision, and some lenders may even require it.

To ensure that you’re getting your money’s worth from a home inspection in Maine, it can be helpful to ask about the extent of the inspection, what kind of report you will receive at the end and what recourse could be done should there be an error after an inspection.

Home appraisal inspections are done by mortgage lenders and involve determining the value of a property against the actual value as indicated in the list price.

Hiring a home appraiser could also determine whether a buyer’s financials match the home they want to buy. This could help the lender determine whether they can recover their losses if the borrower defaults on their payments.

The appraisal value of a home also takes into consideration the current market trends that could affect the increase and decrease of prices.

During closing, the following documents should be carefully reviewed before signing:

• Loan application: Before signing the original loan application, double-check that all information is up to date and correct.
• Mortgage note: This document legally binds you to pay your mortgage and contains information such as the loan amount, interest rate, payment dates and terms.
• Property deed: This document contains information about the property as well as the transfer of ownership to the buyer.
• Closing disclosure: The lender is required by law to provide the closing disclosures at least three business days before the mortgage is closed.

When closing on a home, some fees are associated with the sale. Expect to pay an additional 2% to 5% of your total purchase to include the following:

• Origination fee: Lenders charge an origination fee in exchange for their services. This fee varies by lender and is typically a small percentage of your loan amount.
• Escrow: Property taxes, homeowners insurance, mortgage insurance and annual funding fees are all included in the escrow fee paid to the title company.
• Title search charges: This is paid to the title company and ensures that the property is rightfully in your name and is free of issues like encumbrances and liens.
• Lender fees: Lender fees include the processing, approval and funding of your loan. Appraisal costs are typically included in a lender fee.
• Third-party fees: Other third-party fees, such as inspection fees, attorney fees, homeowners association transfer fees and so on, may also be charged.

MoneyGeek's step-by-step homebuyer's guide ensures that you don't miss any important steps when buying a home in Maine, from locating a real estate agent that could help you find the best home in Maine to conducting a home inspection and handling the paperwork.

Once you’ve closed on a mortgage and have received the loan funds, remember to take note of your payment due date and make the payments on time. Setting up payment reminders or automatic payments can help you remember and not miss your due dates.