If you know you’d like to buy a home in the near future, this post is for you! Making your first home purchase can be both incredibly exciting and also a bit overwhelming. After all, this purchase will undoubtedly impact many aspects of your life, not the least of which is your finances.
Before you go down the rabbit hole of getting too excited about any of the alluring homes on your Zillow app, be sure to take time to consider the various aspects of home-buying outlined below:
Buying a home is not a “short-term” decision
For many homeowners, it can take at least 5 years to begin making progress on the principal of the mortgage and/or “breaking even” on the costs you paid for closing on the house, inspections, etc. If you aren’t exactly sure if staying in one place is for you or if you don’t have career stability, perhaps renting could be the safer option for you for the time being.
There’s more to buying a home than just having a down payment
Most individuals are aware of trying to save money for a future down payment, but often forget about some of the other fees and costs associated with buying a home. For example, closing costs can typically range anywhere from 3-6% of the home’s purchase price, so be sure to have enough cash on hand for this common expense. Additionally, there may be other fees to consider including a fee for your realtor, general inspection, and appraisal so make sure you’ve accounted for some of these expenses in your budget.
Having 20% to put down is ideal, but not crucial
In order to avoid having to pay private mortgage insurance, most new homeowners elect to make a down payment of at least 20% of the home’s purchase price. While this is incredibly sound financially, you can still be approved for a mortgage loan if you opt to put down less than this standard amount. There are certainly programs that can assist you if you fail to accumulate a down payment of this size, but keep in mind, putting less money down will make for a larger outstanding monthly payment, potentially a higher interest rate, in addition to tacking on private mortgage insurance to your monthly fee.
If you’re not sure you can muster up enough of a down payment to ever purchase a home, be sure to consider the possibility of a first time homeowner grant. Many states offer their own programs designed to help encourage homeownership to it can pay to explore these options when you’re first beginning your search.
Take the time to build up your financial reserves and credit score in advance
As many homeowners know, anything and everything that can go wrong likely will go wrong at some point. Don’t be left in lurch or relying on a credit card to get you through in these instances. Instead, aim to set aside money each year to go towards things such as repairs and other general home maintenance (i.e. snow plow services, landscaping, miscellaneous upgrades, etc.). As a general rule of thumb, we recommend having a dedicated house maintenance savings account set up to cover those inevitable expenses. Aim to have about 2% of your house’s value saved for this type of maintenance.
Work to get pre-approved ahead of time
Contact a mortgage lender and look to get pre-approved prior to beginning your home search. This process will help you understand what size mortgage loan you may be eligible or approved for, which will not only help you determine what homes may be within reach, but also helps you seem more credible in the eyes of the seller.
*Keep in mind: just because you’re approved for a certain mortgage amount does not mean you have to spend that full amount.
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