Tips For First-Time Home Buyers
Buying a home is one of the most exciting adventures, however it can be both exciting and stressful especially for first-time home buyers. Here are several tips to follow when you are looking to purchase a home.
Don’t buy a home primarily as an investment
Even though home prices are on the rise, this will not always be the case. If you are looking for a financial return, you might want to stick with the stock market. Owning a home should be more of a personal investment than a financial one. If you are unsure of your job location in the next five years, then owning a home might not be in your best interest right now. Remember, you need to own your home for more than five years to really see a good return on investment.
Know what you can afford
There are tons of mortgage calculators that can help you determine how much of a home you can afford. The amount you are able to borrow depends on many factors, especially on your monthly income and your other financial obligations. In general, your housing costs should not be over 31% of your gross monthly income.
Check your credit score
A good credit score means a good mortgage rate. If you have a high credit score, then you will qualify for a lower mortgage rate. Before you start the home buying process, check your credit report to see if you need to improve your credit before purchasing a home. Remember, paying your bills on time and keeping a low credit card balance can help improve your score.
Understand the other costs involved
There are more costs involved than just the monthly mortgage payment. You will also be responsible for property taxes and homeowner’s insurance. Other costs will include your closing costs, home inspection and some communities have HOA fees. These can be a lot when added onto your monthly expenses.
Plan to put down at least 20%
The rule of thumb is usually a lender will want you to put down 20% of the home’s purchase price. If it is any less, you will be charged PMI (private mortgage insurance). You will have to keep paying PMI until your loan-to-value reaches 80%. Also, if you put down a bigger down payment, it means you are a serious buyer who wants to win the bidding war.
Know what documents you will need for your loans
When you are ready to get approved for a loan, you will need certain documents for the lenders. These include the sales contract, financial statements, pay stubs, previous W2s, IRS forms and homeowner’s insurance policies.
Once you have these documents you are ready to get pre-approved for a loan. Getting a pre-approval lets others know that you are a serious buyer. If you are considering purchasing a home, hire a local real estate agent that can help you with the home buying and lending process.
