FIRST-TIME HOME BUYER’S GUIDE – A Few Things You Should Know before you start
If you are a first time home buyer, here are a few key things to consider. The home-buying process may seem a bit overwhelming, but with research, time, and care, you can easily navigate the entire process.
#1: How Much Home Can You Afford?
As with any major financial decision, the first step is to determine your budget. But how can you determine your budget?
As a rule of thumb, you should only look at house prices that are 2 to 3 times your annual income. This will help to ensure you don’t get a mortgage too high that you then can’t afford.
And when you’re thinking about mortgages, there’s another rule of thumb: your mortgage payments shouldn’t be more than 25% of your monthly gross income. Keep in mind, this is the percentage you need to look at if you don’t have any other higher costs. In case you do, you need to make it lower.
But you still need to have cash reserves. When you’re trying to avoid paying a lot more for your first home, it’s best if you’ve saved 20% of the total cost. This will be your down payment. However, you need to have more to pay for moving costs, additional furniture, and any home improvements you may want to do.
Here are a few mortgage affordability tools that can help you figure out your real home budget:
#2: Discovering The Right Mortgage For You
Once you have a better idea of your financial status, it’s time to look at different mortgage lenders. Make sure that you ask them a lot of questions about the entire process, the qualifying guidelines, how long the process takes, etc.
While there are many different mortgage options, the two more common ones are the fixed-rate mortgage and the adjustable rate mortgage (ARM). A fixed-rate mortgage is a loan in which the interest rate stays the same throughout the term of the loan, while the interest rate for an adjustable rate mortgage periodically adjusts to reflect the current market. Consider discussing your options with a financial advisor and potential lenders.
In terms of the length of the loan, many opt for a 30-year term with smaller payments, though a 15-year term may suit your needs better.
At this point, you should consider applying for a pre-approval. While the bank may approve you for a larger loan, make sure that you’re not seduced and keep your budget in your mind.
Here are a few mortgage lenders that can help you get pre-approved, pre-qualified and set-up with a home loan:
#3: Must-Haves and Nice-To-Haves
Even though you may like to have a 5-bedroom home with 2 kitchens and 4 bathrooms, you don’t really need it. It’s crucial to create a clear distinction between the things that you really need and the ones that you can live without.
Some of the important things you should have in mind are the number of bedrooms and bathrooms, access to the best school districts, and proximity to work and to places you like. Others that are just nice to have include a beautiful landscape, a pool, and home décor that matches your taste. These are things that you can take care of after moving in.
#4: Don’t Try to Do It Yourself: Find a Good Agent
The first thing you should do is check the homes around the area where you want to buy yours. Check the must-haves and the budget. This will give you an overall picture of the neighborhood. However, if you really want to start looking for your first home, hire a good real estate agent. He or she will help you find deals that aren’t open to the public, schedule private visits if necessary, and walk you through the entire process. Also, when it’s time to negotiate, you can count on your agent to represent your side. An agent’s most valuable asset is their experience. Most agents buy and sell more homes in a year than the average person will buy/sell in their lifetime.