Depending on your background, home buying can be an exciting time or an overwhelming time. It is exciting to see how quickly homes are disappearing from the market in a matter of three or four weeks. This frenzied market can also scare you because you may not know how to enter it. Such a market encourages impulsive buying of homes, especially for the inexperienced (first time) home buyer. A first-time home buyer can easily make mistakes that will hurt future financial goals and can keep one paying on a home well into retirement. Following are tips on getting a home loan for a first-time buyer.
Determine Your Price Range
The mindset for buying a home is like the mindset necessary for buying a car. Determine how much house your budget will allow before getting emotionally attached to a potential new home. Remember, you still need to have a workable budget for all other items besides your new home. An excellent rule of thumb is 25 percent of your take-home pay can go towards a mortgage. Do not forget to add homeowners insurance and property taxes because these will be a part of your monthly payment. Property taxes and homeowner’s insurance prices vary, so check with your real estate agent and insurance company for estimates to calculate how much house you can afford.
Attend Open Houses and Think Long-Term
Whether you have decided on a target neighborhood, go to some open houses. Going to these open houses helps you to learn about home options and the geographical area. Keep in mind that a purchase at the bottom of your price range but in a good neighborhood will allow your home to build more value. For example, if you buy a house that does not have the same amenities others in your neighborhood have. You always have the possibility of upgrading to those amenities to add value to your home.
Research Neighborhoods for the Best Fit
You should not make a home-buying decision based solely on the property. Statistically, people buying a home will compromise on size and the home’s condition before looking at the neighborhood and distance from school. A good source of neighborhood information would be your real estate agent. He/she can give timely, helpful information about schools, traffic conditions, and noise levels. You only want to choose a neighborhood where your family will enjoy it’s new home.
Pay off your debt
If you are just paying monthly rent where you are living, you may think you can afford a home where the payments are the same. However, owning a home is much more expensive because of the maintenance and upkeep costs. Before you buy a home, be debt free. You should also have an emergency fund of up to six months worth of expenses amassed. This fund will be useful when paying cash for unexpected big expenses, that will probably be unexpected. This reserve cash fund will help you eliminate worry and stress because these big sudden bills will not be a factor.
Save for Your down Payment
Most people, for whatever reason, cannot pay cash for a home up front. However, it is helpful to pay 20 percent of the homes price up front. $30,000 is easier to come up with when you buy a home rather than $150,000. If you pay 20 percent or more of the purchase price down, you will not have to pay for PMI (Private Mortgage Insurance). Private Mortgage Insurance protects the lender in the event you default on your payments. PMI runs about 1 percent of the total loan. 20 percent of the purchase price is still out of reach for many, but there are some first-time buyer programs that can help such as FHA loans and VA loans. These choices offer options anywhere from zero down payment to 3.5 percent of the home price as a down payment.