Buying your first home is a great accomplishment and an exciting time. However, it can be very stressful when it comes to handling all the financial aspects. Financially preparing for purchasing your first home may take some time, and you might have to wait longer than anticipated. Listed below are 10 ways for first time home buyers to prepare for buying their first house.
1. Save as much as possible and eliminate debt
Saving up for a house may be a challenging and long process. However, don’t forget to keep up with your regular payments and expenses. Putting yourself in more debt to save for purchasing a new home isn’t going to benefit you.
Try to pay off as much of your debt as possible before purchasing your new home. Chances are you will have a large mortgage and not want to spend a fortune on repaying other debt.
It is also going to be vital that you remember to save up at least 3-6 months in your emergency savings fund. This may seem unnecessary if you haven’t had to worry about typical house issues with a rental property. However, houses can come with some unexpected expenses that you may not have planned for. An emergency fund is a good idea in a variety of situations, especially when it comes to home owning.
2. Be patient
Saving to buy your first home can be challenging, especially if you have student loans to pay off. A lot of aspects of purchasing a home that buyers need to prepare themselves for are a down payment, closing expenses, or any other associated costs. While it may seem hard to do, try your best not to make large purchases while trying to save for a new home or purchase a new home.
Try to avoid changing jobs, buying a car, or applying for a new credit card. It may be best to avoid making any new significant changes to your life, especially financially.
3. Clean up your credit
An essential step in buying a house is making sure that you clean up your credit. Determine if there are any mistakes on your credit report and get them taken care of. This could improve your credit score and help you find a good rate more easily.
Your credit score plays a large role in your ability to receive a home loan, so make sure that your score is as high as possible. This will make you more appealing to lenders and assure them that you have adequate financial means and habits.
4. Know how much you can afford
A tricky step when purchasing a new house, especially for first-timers, is determining how much you can afford. It’s essential that you think about what is within your budget. Can you afford to spend hundreds of dollars on a mortgage each month? Take your monthly income into consideration to determine what mortgage payments you can comfortably pay while paying for all other expenses.
Use a mortgage calculator to determine what your monthly payment should be. Being a homeowner often brings in more expenses than a rented apartment. Many additional costs need to be considered, such as lawn care, higher electricity bills, home insurance, property taxes, etc. When determining your monthly mortgage payment, keep in mind that interest rates are going to play a role.
Don't forget to keep in mind that buying a house may come with some unexpected expenses. Always be prepared and budget for more money than necessary to ensure you have back up funds.
5. Shop for homes within (or below) your price range
When it comes to starting the process of looking for a new house, be very mindful of the prices of homes that you are looking at. Before you even begin looking at houses, you should have a set price in mind of how much you are willing to spend, renovations, or other costs included.
Going over in price can cause problems with your lender and potentially cause you to have a larger down payment and closing costs. If you stick to your determined price range or below, you may even save money.
6. Do your research
It is a no-brainer that one of the most important aspects when purchasing a new home is figuring out what the neighborhood is like. It is important to remember that you are essentially buying the whole neighborhood and the property when you purchase a home.
When visiting a neighborhood of a potential new home, if something doesn’t feel right, try looking for a new location. Ask your real estate agent for helpful tips and tricks on determining if the neighborhood you are looking at is safe and family-friendly. Similar to your wish list, keep in mind the location of your work and school districts.
7. Know what you want in a house
When you begin looking at options for future houses, you will most likely want to start making a wish list of features and characteristics you want. While finding all your desires in a home can be difficult, make sure you determine items on the list that are non-negotiable. A few examples may be the number of bedrooms, bathrooms, or distance from work or school.
When creating your list, try separating your elements into “wishes” and “non-negotiables.” This will help you distinguish between items that you can’t live without and ways you could potentially improve your home in the future. Try to be realistic and understand that you may not get everything you want on your wish list, but you may come close.
Keep an open mind when house hunting see if there are ways you could renovate the house to fit your perfect wish list!
8. Get pre-approval
Before searching for homes and viewing potential homes, visit with a mortgage lender to determine which mortgage will fit you best. Pre-approval can be essential when it comes to purchasing a home that is hot on the market. After selecting your mortgage plan, show the sellers that you are willing and able to buy their home.
Pre-approval can give you a competitive edge against other home buyers because it shows that you are serious about making a purchase, showing how much a lender has already agreed to provide you.
Home buyers can seek pre-approval in a variety of ways. A couple of options are seeking a conventional loan from a private lender and seeking an FHA loan from the U.S. Federal Housing Administration. There is also an option for veterans to obtain a mortgage loan. The United States Department of Veterans Affairs guarantees veterans a VA loan to mortgage a new home.
There are also other various mortgage loans, but these are quite common. Be aware that some private lenders may have you pay a small fee each month for private mortgage insurance, that way they are protected if you default on the loan.
9. Think long term
When visiting potential listings for your new home, start asking yourself questions. Would you want to build a family here, or have your family live there long term?
While there are always going to be opportunities to move houses or cities, really think about how often you may want to move. If you don’t see yourself at that location long term, consider finding other options or renting until you know your ideal location. A house is a large investment, and it's not always the best idea to be constantly selling and buying homes.
10. Prepare for your down payment and closing expenses
A large financial aspect that individuals may not think about when purchasing a home is the down payment. It may not always be reasonable for a family or individual to save up the total house price. A good rule of thumb is to try to save 20% of the total final cost of the house for a down payment.
Aside from a down payment, you will need to prepare for closing costs. First-time home buyers may not be aware of the expenses associated with purchasing a home and closing on a home. According to Zillow, buyers will typically pay between 2 and 5 percent of the purchase for closing costs.
Many costs are associated with closing, such as appraisals, home inspections, and homeowner’s insurance. While those are just a few, there are many more closing costs to be aware of.
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