Essential Tips for Buying Your First Home
So you’re buying a house. Congratulations! For first-time home buyers, having an idea of how much house you can afford beforehand will go a long way in both saving you time and money. Before you agree to terms, you need to make sure your finances are in order. That’s why we created a checklist. Here are a few first-time home buyer tips to help you get started.
1. Make Sure You Have Enough Money Saved
Buying your first home is a big expense, and one that you’ll continually work to pay off. For the first-time home buyer, it’s important to have enough money saved—not just for the down payment, but ensure that you’ll be able to make subsequent payments over the next 5, 10 or even 20 years.
2. Check Your Debt-to-Income Ratio
While different loan types offer different rates and terms, a general rule of thumb is to never agree to monthly payments that exceed 25% of your monthly income. Start by calculating what’s affordable for you. In other words, what you’re comfortable paying per month. For instance, if you make $4,000 a month, your monthly house payment should be no more than 25 percent of that, or $1,000.
Keep in mind your debt-to-income ratio will be used to calculate your entire mortgage payment, which includes Principal, Interest, Taxes and Insurance (PITI). You also might need to take into account a condo or homeowners association fee.
3. Get Pre-Approved
Buying your first home may be stressful, but getting pre-approved for a loan will help ease the tension. Once you have enough money saved and a set budget in mind, start talking to lenders to get pre-approved for a loan. By being pre-approved, you’ll have a better idea of which homes are in your price range and have more bargaining power when it comes to closing the deal. Plus you’ll find out how much of a down payment you will need. This might be zero down, 5%, 10%, 20% or even 25% depending on a variety of financing options and the type of property you are buying.
4. Have Your Home Inspected
Experts say you should have at least two separate home inspections before you agree to terms. For new homeowners, having a home inspection may be able to save you thousands of dollars by avoiding potentially extensive repairs you would otherwise be unaware of.
5. Check Different Mortgage Options
The four basic mortgage options include:
- Fixed rate, where interest stays the same
- Adjustable-rate, where interest fluctuates with market rates
- Nontraditional, which include interest-only and zero-down options
- Special financing, where buyers who need extra financial help may qualify.
Knowing the difference between mortgages types will help you find a plan that works best within your budget.
6. Read Over and Understand the Terms
Before signing any document—especially one as important as a house—read over the terms to make sure you know exactly what you’re getting into. Taking the time now to discuss terms will go a long way tomorrow.
By doing your research and shopping around, you’ll have a better idea of how to buy your first home. Plus, you’ll have a better chance of finding mortgage rates that suit your budget.
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