five things every first-time home buyer should know
Buying a house is an exciting event, but if you're a first-time home buyer, this is uncharted territory for you! Before you jump in headfirst, we recommend you develop a realistic budget that comfortably fits your lifestyle. What you can afford and what you may be approved for could be two completely different numbers. Keep in mind that household expenses, such as groceries, gas, utilities, cell phone, cable, vacations, higher education, and other wants and needs, are not typically included by lenders when determining your debt-to-income ratio. Once you've developed your budget and are comfortable with the Mortgage payment you can afford, read on to learn about five other important things every first-time home buyer should know.
1. the larger your down payment – the more you will save in the long-run
Buying a home is likely the largest financial commitment you'll make in your entire life! You'll need to budget for making a down payment months before you purchase your new home. Depending on where you secure your mortgage loan, the required down payment amount may vary. However, a 20% down payment is encouraged industry-wide.
With a 20% down payment, you can avoid paying for Private Mortgage Insurance (PMI). PMI helps protect your mortgage lender in the occurrence that you default on your mortgage payments. PMI can cost you extra on top of your monthly mortgage payments. Paying 20% or more allows you to have a good chunk of equity from the very beginning, and it can also decrease your monthly mortgage payments or even shorten the length of your loan – who could say no to that?!
pro tip: Taking the time to save up for your down payment will make a better impression on your seller and could give you the upper hand in negotiations.
2. plan for the unexpected.
The down payment is not the only thing you should plan for. With homeownership comes homeowner responsibilities. Some responsibilities you can plan for, and others could surprise you!
Here are just a few expenses to prepare for:
closing costs
Your closing costs could range anywhere between 2-6% of your home’s value, depending on the type of mortgage you get and the financial institution you are with. This cost is in addition to your down payment.
home repairs
Leak in the bathroom? Ants in the kitchen? Home run crash through a window? Back-up from an emergency fund is perfect for these situations. Emergency funds will vary and are dependent on individual lifestyles. However, it's recommended that you have at least six months of expenses stashed away in your savings account.
property taxes
Research the area you are planning to settle in. Most states calculate taxes based on the property value and local tax rate. This will differ from city to city and home to home.
check out: preparing for future home ownership or refinancing your current mortgage.
3. keep a steady credit score during the home-buying process
Once you’ve started the home-buying process, you'll need a break from anything that could impact your credit score drastically. Avoid opening new loans and lines of credit or spending a lot on your credit card.
Mortgage lenders want to see that you are capable of managing your money responsibly. Some lenders will re-pull your credit near the home closing. If they see a big decrease in your score, this could potentially increase your rate and monthly payments.
pro tip: Wait patiently for your mortgage loan to be finalized before making any extravagant purchases like buying new appliances or furniture.
4. know what you want but be willing to compromise
It’s important to know what you want when it comes to buying a home. Perhaps you like to have guests over and entertain – you’ll need a good backyard for that! Or maybe it has always been your dream to have a big and spacious kitchen for your family to gather in during the holidays.
As you search for homes, it may become apparent to you that the dreams and visions you had for your first home may be out of reach, and you'll have to be flexible on the things you thought you couldn’t live without. This could be due to the state of the housing market or even the location you’ve been searching in.
pro tip: Make a list of the non-negotiable attributes of your home and the “wish list” items you may be able to forego if push comes to shove. Don't let the dull curb appeal of a home turn you away from something that meets every other one of your expectations. That's something you can fix!
5. enjoy the process
We know buying your first home is exciting, scary, stressful, and unknown, all wrapped up in one big bundle. However, it's also a rewarding experience. After all, you're not just buying a house – you're buying a home and a lifestyle!
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