What every first time buyer should know
Things Every First-Time Homebuyer Should Know
Buying a home is probably the biggest purchase you’ll make in your life. In addition, it’s almost necessary due to the fact that it’s a great way to build wealth over time. And yes, it does seem very overwhelming, nerve-wracking, stressful, and intimidating, to say the least. If you’re sick of asking someone if it’s okay to put a nail in the wall, go for it, with the right planning and research you’ll be able to purchase a home that suits your needs while not affecting your financial future. Here are a few tips to consider when buying your first home:
Find out What You Can Afford
When buying a house, the first thing you’ll need to do is figure out how much you can actually afford. Mortgage lenders will take your credit score into consideration, therefore, it’s essential that you have a clear view of your assets, exact income, and debts. This way, you’ll have thorough knowledge about how much you can afford. It’s recommended that you try to get your credit score as best as possible, because a lower credit score means a higher mortgage rate! Keep that in mind!
Shop around for the Best Mortgage
It’s key to not go with the first mortgage you find, or the one your parents recommend. Shop around and try to find the best one for your particular situation. Most mortgage lenders vary in fees and rates, and although they may seem minimal, down the road they could add up into the thousands.
What You Can Actually Afford Vs. What You Qualify For
The general thumb rule the pros use is that your housing costs should only be 30% of your paycheck. If it can be even lower, great, because although you can qualify for a higher debt to income (how much will be coming out of your paycheck), sometimes it’s just not doable in reality. Technically, yes you can afford it, but are you really taking into account other expenses that will surely arise such as taxes, credit card payments, car payments, and basic stuff like food and electricity? It’s very important that you be honest with yourself and what is actually affordable for you. Don’t make life more stressful than it already is.
What’s up with the Down Payment
The down payment has usually always been around 20% or more, however, nowadays, most mortgage lenders will let first-time owners pay around 3%. Ideally speaking, it should be around 20%, because paying less is usually counterproductive because you end up paying principal mortgage insurance which is frustrating and honestly, just a waste of money. Reality is, if you can’t save up for a down payment for the place you want of at least 20% you probably shouldn’t be considering buying it in the first place. It’s just not the right time, because this is only the beginning, there are homeowner’s taxes, insurance, and maintenance you should consider.
David Rae, one of the 100 most influential financial planners, suggests clients who are considering to buy a home to start saving the difference between their rent and their estimated mortgage payment during 6 to 12 months. This way, you can find out just how feasible it will be to achieve. If you see that it’s very difficult to do, ask yourself what else you’re willing to give up, if the answer is nothing, you should lower your housing budget or consider not buying a home right now. Plus, the extra money you save can go towards your down payment or expenses once you move in, like furnishing.
How to Save for Your Down Payment
So know that you know what you can afford and how much you need to qualify for your mortgage. It’s time to get down to saving. It’s ideal to pay off or reduce any debts as much as possible. So don’t go buying a new car right now, or making a big purchase on your credit card. The easiest way to save is through old-fashioned budgeting. Figure out your total income, see how much you need to live, and how much you’re actually spending on things you could cut out like eating out or buying coffee every day.
Get Help from the Pros
When dealing with buying a home plus all the other stuff you do as a human it can be easy to make mistakes that can affect you drastically. We highly recommend partnering up with a financial planner to get an extra insight on how to make the best purchase you can afford without negatively impacting your financial future. And then, searching for a realtor you get along with and trust, it’s important that this person is highly skilled and has lots of knowledge regarding your area to help you find exactly what you want.
Save up for the Extras
It can be easy to get carried away with mortgage payments, down payments, homeowner’s insurance, taxes, and so forth to forget that once you move in there’s still a lot to do. To avoid sleeping on a mattress on the floor, or sticking with the huge butterfly on the wall from the previous homeowner’s children, make sure you save up enough money to furnish the house once you move in, to buy all the appliances needed, and to make improvements or to simply paint whatever it is you don’t like.
There you have it! Buying a home for the first time is a daunting task but it’s not impossible and with the right planning and the right help, it can be one of the best decisions of your life! Get down to it and start saving today!