So, you’re buying a home for the first time.Regardless of age or life stage you’re in, the size or type of your new home, this is a milestone.
You should be proud of yourself – congratulations!
By now, you’ve realized that a lot goes into buying a home, and that it goes beyond finances. There are so many decisions to make that it can quickly become an overwhelming process.
We get it. So, we’ve listed some tips to help make the process more manageable for you first-time homebuyers.
Unless you already have a chunk of money set aside, saving money should be a top priority. The larger your down payment is, the more buying options you’ll have and money you’ll save in the long run. The smaller your down payment is, the more money you’ll have to finance – and that money isn’t free.
When you finance a mortgage, you pay interest on the money you borrowed. Over the course of a standard 30-year mortgage, you could end up paying hundreds of thousands of dollars in interest.
If you’re able to put down a larger down payment, you’re looking at a lower monthly house payment and paying less interest.
The more you save, and the more you can put down, the better off you’ll be.
Make a strict budget and stick to it as best you can. Create a spreadsheet and calculate your monthly income and spending. Include things that determine your cost of living, such as:
Stay disciplined and focus on the goal: owning a home.
Your credit score will determine how much money you can borrow and at what interest rate. If you’re looking to borrow a significant sum, which most first-time homebuyers are, good credit is key.
The better your credit score, the more money you’ll be allowed to borrow.
The strategy is to borrow the money you need at the lowest rate possible. This will keep your monthly payment low and help you avoid paying thousands more in interest.
Here are some tips to strength your credit score:
Remember, even if you are given the amount needed to cover the cost of the home, the interest rate must be feasible. If you pay a higher interest rate on it, it could push your monthly bill beyond your comfort level.
There are several different types of mortgages available, although many have certain stipulations. VA loans, for example, usually require no down payment, but they’re only available to military service members.
If you’re concerned about coming up with enough money to make a substantial down payment on your home, there are loans available specifically for first-time homebuyers. Some even require as little as 3% for a down payment.
Keep in mind that there are also different loan terms available. 30-year fixed-rate loans are the most popular, but there are 15-year, 20-year, and even 40-year loans.
Most loans are at a fixed rate, meaning the rate won’t change over the life of the loan. There are also adjustable-rate mortgages, which are a good option when interest rates are high.
When it comes to choosing a mortgage, only you can decide which is the right one for your situation.
Depending on the type of mortgage you get, you could be required to pay Private Mortgage Insurance, or PMI. This insurance can cost an additional 0.25% to 2% of your annual loan balance until you have 22% equity in your home. Depending on how much you put down, it can take years of extra PMI payments to reach that level of equity.
Not having enough money to avoid PMI can also impact the type of home you can buy.
For example, let’s say your budget allows for a $1,500 monthly house payment. If you don’t have a large enough down payment, your monthly bill could easily go from $1,500 to $1,800. That extra $300 could put you out of your price.
With the cost of homes these days, a 20% down payment is not always feasible. In these cases, you may choose to provide a smaller down payment and pay PMI instead of waiting years to buy the home you want.
Another significant expense is closing costs. These are the fees you pay to finalize your mortgage. Closing costs typically range between 2% and 5% of the purchase price. Some buyers ask the seller to pay a portion of the closing costs.
Closing costs and your down payment are two of the largest expenses to consider when buying a home . There are several others that are much smaller in comparison, but they can add up when you put them all together. These include home inspections, repairs, home insurance, moving expenses, HOA dues and more.
The key here is to know that your savings shouldn’t end at the thought of a down payment. Make sure you’re factoring in these additional costs when creating your budget.
It can be tempting to start looking at homes that are out of your price range (who doesn’t peruse Zillow drooling over million-dollar homes?). But it’s important that you determine which features are wants and which are needs.
Make a list of have-to-haves and nice-to-haves. Think of what your path in life looks like and what you can find in your home to help you get there. Do you want to be in a particular neighborhood or school zone? What is the minimum number of bedrooms you need? How far of a commute to work are you comfortable with?
No matter how much you like the look of a house, you need to take all factors into consideration. Determine what you need to make a house your home.
At Brighland Homes, we believe happiness starts at home, and we’re here to help you find your perfect first home. Fill out the form below today, and we'll get started.