Considerations First Time Buyers Should Know
Buying a House For The First Time
Buying your first home is an exciting time. Looking through listing after listing to find your perfect home can be a stressful time, though, too, especially when you see the price tag attached. With all the excitement, you might even make an impulse buy on your first home, which could be hanging over your head well into your retirement.
Before you get swept away with the excitement of buying your dream home, you should first learn what first time buyers should know before committing themselves to property. Let's take a quick dive into some of the more essential considerations to think about before jumping into the real estate market.
By following sound first-time buyer tips, you'll be less likely to make a bad purchase decision.
Pay Off Your Debt Before Committing to a Home
Owning a home is one of the most expensive things you will take on in life, far more than it is to rent a place of your own. Once you factor in all of the maintenance and upkeep costs you’re going to be responsible for, it can be a daunting thought.
Making sure you’re debt-free before you buy a home will mean that you have spare cash for any huge expenses that suddenly come your way, as well as allowing you to have the money to upgrade and decorate your new home however you like. Besides, paying off debt will increase your credit score, which will help immensely get the best loan terms and conditions.
While you can buy a home when you don't have the best credit, why would you want to put yourself in the position of having a more expensive loan? The difference in monthly mortgage payments could be substantial.
If your debts have been taken care of for the most part, but you need a bit of help with your credit score, I would highly recommend Credit Karma. Credit Karma is a free service that helps you make the right credit decisions. By following their advice, you will put yourself in a better position to boost your credit scores in the shortest time possible. Best of all, Credit Karma is free!
Be Realistic About What You Can Afford
Way before you begin looking on the market to find your dream home, you should first figure out how much home you can afford before you get emotionally attached to a property.
This means calculating how much you have to use every month from your wages as well as factoring in any other costs like property taxes and homeowners insurance. Doing these things will allow you to figure out a maximum ballpark price. Since these things can vary, you should check with your real estate agent and insurance company for estimates so you can better calculate these costs.
Be honest with yourself about what you can afford to pay when it comes to decorating the new rooms in your home too. Furniture and other home decor and accessories can add up rather quickly.
Even if a room has to be empty for a while, your future self (and bank account) will be thanking you.
Get Preapproved For a Loan
Of course, it goes with saying that you should get preapproved for a mortgage. Once you’ve calculated the amount you’re going to need to buy your first home, next, you’re going to need to start talking to mortgage lenders so that they can cover the rest of the costs.
To show you’re a serious buyer, you’re going to want to get a preapproval letter from a reputable lender before you start your home search. Real Estate agents and home sellers are not going to take you seriously without have a valid preapproval.
Save For a Down Payment and Your Escrow Funds
As we suggested before, you’re going to want to be realistic about what you can afford; so if you can’t afford to pay cash for the house you want to buy (99% of you won’t), you’re going to need to secure some money so that you can afford to pay a down payment.
Ideally, you’re going to want to be able to pay 20% of the home as your down payment, but again this isn’t realistic for everyone.
Instead, you can pay a single-digit down payment, though this will cost way more in the long run since you’ll need private mortgage insurance, which protects the mortgage company in case you can’t make payments in the future.
Keep in mind part of your down payment will go toward escrow funds that will be either held by a real estate company, attorney's office, or title company. Escrow funds are referred to as earnest money in real estate transactions. The money is there to ensure you will perform as specified in the contract and not just walk away on a whim.
Don’t Forget About Closing Fees.
Just like a down payment, you’re also going to need to pay closing fees on your new home, which can be anywhere from 3-5% of the purchase price of the home.
This will be an exact number your lender will give you before closing day, so you know what you’re going to need to budget.
Be Realistic and Find a Home in Your Price Range
Once all of the previous things have been sorted, it’s time to start looking for your dream home - on the budget you can afford, of course. Since this is your first home, it’s normal that you’re going to want the very best.
But you might not be able to afford it this time around, but that does not mean you should settle for anything less. You’re going to want to love the place you’re about to spend your money on.
It doesn’t have to be your forever home, but it can be used as a stepping stone to something much bigger and better in the future.
Final Thoughts on Buying Your First House
Buying a house for the first time is exciting and scary all rolled into one. One of the most vital things to do is make the right decisions throughout the entire home buying experience. Do your due diligence on all aspects, from working with lenders, real estate agents, and home inspectors. Ensure you are comfortable before proceeding and never succumb to pressure if the decision doesn't feel right.
When you do these things, you have buyer's remorse or end up making a terrible first-time buyer's mistake.
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