First Home? It’s All About Priorities
Buying a home is full of excitement as it represents a new chapter in your life. Make no mistake though – The entire process can be rather daunting, especially for first time home buyers. There are numerous factors to take into consideration. Not to mention that it’s a major financial decision that will impact your life for many years to come.
You may be eager to move out and finally stop renting. But the last thing you want to do is to make any impulse decisions. It’s going to be extremely difficult to change your mind once all the paperwork is finalized. With that said, we put together a list of the top factors to prioritize when buying a home.
Determine How Much You Can Afford
Even before you start looking at homes, you need to first establish how much you can actually afford. A common mistake that many first-time home buyers make is stretching their budgets to the limit. Allow for some breathing room in your budget for other housing costs such as taxes, insurance, and HOA fees.
One rule of thumb to follow is that monthly mortgage payments should not be more than 25% of your take-home pay. If you earn $6,000 a month, multiply that figure by 25% to calculate a maximum monthly payment of $1,500. So based on a 30 year mortgage with a 4% interest rate, you could afford a $320,000 home with a 20% down payment.
Use an online mortgage calculator or enlist the help of your bank’s loan office to calculate how much you can afford. No matter how much you love a home, it may not be financially feasible.
Get Your Finances in Order
It should come as no surprise that getting a mortgage requires a good credit score. Before you apply for a home loan, review your credit report from each of the three major credit bureaus. To fix any errors, send a certified letter that disputes each item and provide evidence to support your claim. Then request deletion or correction. This process can take about 30 to 90 days.
As you clean up your credit, you’ll also want to consider the cash you’ll need for a down payment. If you put down 20% or more, you won’t have to pay for private mortgage insurance (PMI) which protects lenders in the event of a foreclosure. It’s possible to put down a smaller down payment if you have a good credit. But keep in mind that your monthly mortgage payments will be higher. If buying a home is still many years down the road, consider opening a high interest online savings account to get a better return than a regular checking account.
Once you’re confident that your finances are in order, you can get pre-qualified for a loan. Pre-approval means that a lender has verified your financing and has approved a specific loan amount. Having those documents in hand puts you in a far better position when negotiating with a seller.
Work With a Real Estate Agent
Finding the right home is not always easy. A real estate agent can help you save a great deal of time and effort. If you already know where you want to live, ask for any realtor referrals from family or friends. A good realtor is knowledgeable about the area and will send you listings that fit any “must-have” factors that you have.
Real estate agents often know of new listings that may not actually be on the market yet. That gives you a major advantage as it means you may be able to close the deal before other buyers even have a chance to make an offer. Take your time finding a real estate agent as he or she can make or break the home buying experience.
Alex Morrison has worked with a range of businesses giving him an in-depth understanding of many different industries including house cleaning, financial support, and health care. As the owner of Integral Media, he is now utilizing his knowledge and experience with his rapidly increasing client portfolio to help them achieve their business goals.