8 ideas for First-Time Home Buyers
A Three-Part Series
|Buying a home is very exciting, although it can be overwhelming. Especially, when houses are selling quickly, and over the asking price. In a HOT market, such as 2019, you may be tempted to make an impulsive purchase, which may crush your financial budget. You want to be very careful to buy the home that you love in a way which does not hurt your future financial and personal goals.
Here are some great ideas for buyers at any age!
1. Pay off all debt and build an emergency fund –
Owning a home is more expensive than renting. You are responsible for the maintenance; therefore, make sure you are debt free and have saved 3-6 months of expenses. Unexpected expenses pop up such as: a new washer, a new furnace, or replacing the roof. Tackle one room at a time.
2. Determine how much you can afford –
Make sure you can afford your monthly housing expenses plus fees, taxes and insurance. The total cost of the home per month should be less than 25% of your monthly take-home pay. Include your 20% down payment and allow for a cushion. Add in costs for snow, garbage removal and internet charges.
3. Save for a Down Payment –
We can help you with short-term income investment options as you save for your down payment. The 20% down payment will reduce your monthly mortgage payments and eliminate private mortgage insurance (PMI) expense. A 15-year fixed, or variable mortgage is an effective low-cost option. A 30-year conventional fixed mortgage is a longer-term option.
You can use a piece of your ROTH IRA as part of your down payment; however, we don’t recommend this strategy. This is for first time home buyers, such as yourself, your child or grandchild.
4. Saving for Closing Costs –
Closing costs can add up; on average the costs could be 3-4% of the purchase price. These fees include: the appraisal, home inspection, credit report, and a title search.
5. Get Pre-Approved for a loan –
Take the extra time to get a pre-approval letter from a lender or mortgage broker. This will show that you are a serious buyer and that you have a leg up on the competition. You will have to verify all your financial information, such as proof of income, taxes paid, a credit check and submit your loan information for preliminary underwriting.
6. Find a home for sale in your price range –
Look for homes on-line, take a virtual tour, and hire a real estate agent for access to homes on the Multi list. Research neighborhoods, high quality school districts and length of your commute.
7. Make a Competitive Offer (within your budget!)
You are pre-approved therefore you are ready to submit an offer. It may be tricky to know how much you should offer. Get advice from your real estate agent to ensure your offer will be competitive.
8. Get Ready for Closing –
On average it takes 41 days to close on a house. Read all documents carefully and ask questions if things are not clear; you are signing the documents.
Buying a home is a large and important purchase; therefore, you do not want to risk making costly mistakes. Your home is one piece of the puzzle, how it is financed and how you invest the rest of your finances is our business. We are here to help!