What to Know About Buying Your First Home
While interest rates are still at historically great levels, lots of first time home buyers are jumping to get a mortgage and into the market and buying a home.
The rates are so reasonable that many people are discovering their new home payment is a bit lower than their previous rent payment.
As a service to home buyers, I have laid out this detailed plan that teaches you how to become a homeowner. Use the guidance to make smart decisions when buying your first home.
These first time home buyer tips will put you on the right track to home ownership!
Financial Side of Home Ownership
Full Costs of Owning a House
While it is true that savvy buyers are finding mortgage deals with monthly payments either near or lower than their rent payment, that is not the full cost of owning a piece of property.
Along with the principal and interest payments, the homeowner will also be responsible for the property taxes that come due each year. Homeowners will also need to purchase home insurance to cover any damages that may happen due to storms, theft, fire or other unfortunate circumstances.
Then there is the matter of basic upkeep on a home. Things like replacing a roof, fixing a plumbing issue and keeping the yard maintained all fall on the shoulders of the homeowner. Some consumer financial experts suggest that the average yearly maintenance will amount to about 1.5% of the home’s market value.
That would mean for a $250,000 home; the owners should anticipate spending around $3,750 in various items.
What are you Willing to Pay?
Buying a home is similar to financial investments. Some people are very conservative with their financial choices and only put their money in traditionally safe places such as certificates of deposits. Other people are willing to take on more risk and will pick the latest stock pick of the day, hoping to make a large profit.
When buying a home, some people want to stretch their income as far as possible and get the most home that they can for their payment. Others are more content to get a home that fits their needs and leaves them more money for investing, traveling and other pleasures.
There is no right or wrong answer to this question. It is up to you to decide how much you are willing to pay per month for a home. Just be sure you don’t put yourself in a financial hole you can’t dig yourself out of.
Making a Down Payment
Some loans, like the VA mortgage and the USDA loan, will allow borrowers to purchase a home with a no down payment requirement. Other loans, like FHA and the similar HomeReady loan from Fannie Mae, will ask for at least 3% to 3.5% of the home’s selling price to be paid as a down payment.
Depending on credit scores, loan program, and other factors, some borrowers could be asked to pay as much as 20% down payment in order to secure financing.
Keep in mind that the down payment money should be separate from other savings. It is never a good idea to use all of your money towards the down payment and have no reserves after the house is purchased. Bad situations happen all the time, and it is wise to have some money put aside in a “rainy day fund.” Plus, saving money for a down payment doesn’t have to be an overwhelming task. A simple money-saving plan can add up quick.
Checking Your Credit
Before looking at homes, all buyers would be wise to review their credit score and then get pre-approved by a local mortgage lender.
Reviewing your credit report will give you a chance to work on any errors. For example, if you have a common name like John Smith, there may be an account showing on your report that belongs to someone else. It also gives you an idea of what to expect when the lender looks at your credit rating.
After you are sure the report is correct, talk to a lender about your options. Explain your budget to the lender, as well as your future plans, so that the mortgage loan officer can put together the best lending options for your needs
Paying the Closing Costs
While it is possible for a seller of a home to pay closing costs on the transaction, this is not always the case. Furthermore, you should not plan on this.
It is entirely possible that you will be asked to pay a portion, or all, of the closing costs for the purchase of your home. The total amount will vary based on a few factors. Your mortgage lender can provide you with an estimate of the closing costs and explain each item to you.
Keeping your Financing on Track
During the process of getting your mortgage, you also need to pay more attention to your finances. Above all else, you must make sure you don’t do anything that will cause your mortgage approval to be taken away. These are a few of the mistakes that you could make whereby a lender could refuse to give you a loan:
Applying for new loans
Making large deposits, you are not able to document
Not paying your credit card
Making a large purchase such as a new car
Falling behind on your rent