You’re at a stage of your life where you’re making some big decisions.
Buying a home is extremely exciting. You start picturing the fenced in backyard with the dog running around. Having parties with all your friends, and sitting on the front porch.
A lot of the mistakes people make is because they get in a hurry and get wrapped up in the emotions.
Before you go out and sign away the next 30 years of your life, there are some financial steps you should take.
Do Your Homework
Buying a house is a HUGE investment. You wouldn’t buy a car without doing a mountain of research, a home is no different.
If you’re a first-time homebuyer, you might be overwhelmed with what to look for. Your research should include the price of other homes in the area, the crime rates, any pricing changes, and how much you can afford.
A lot of buyers will go to a mortgage lender or real estate agent without doing any research. This is one of the worst mistakes you could make. If you don’t know what you want or how much you can afford, you can find yourself in a how which is WAY out of your price range.
One of the most problems is a couple or individual will go to a lender and get a pre-approval for an amount they can’t really afford.
The lender is going to give you the absolute MAX in what you can afford (they want to get as much money out of you as possible). Don’t take any numbers they give you as gospel. Instead, go through your budget, savings, and income and determine how large of listings you can afford. This is going to completely change how you house shop and the listing you look at.
Decide if NOW is a Good Time
A home is the biggest investment you’ll ever make. It’s a huge commitment and not one which needs to be made lightly.
Before you sign those papers, look at your credit score. Yep, those three numbers are going to be the three most important numbers in the home buying process.
The difference in mortgage payments between applicants with a good credit score versus one with a bad score is thousands and thousands of different.
Let’s look at an example. Imagine you’re shopping for a modest home, somewhere around $250,000. If you have an excellent score (700 or above), you’ll probably secure a low-interest rate — in this example, we will use a rate of 4.17%.
Now, let’s say you’re buying the same home, but instead of your great credit score, your’s is around 650. You won’t get the lowest rates, instead, you’ll get higher interest around 5.12%.
The difference in monthly payments will be near $200 difference.
If you’ve got the time and patience, fixing your score will pay off in the long run. As you can see from the example above, it doesn’t take a whole 200 points difference. Every little bit helps.
Find a Trustworthy (and Experienced) Agent
Real estate agents are a dime a dozen. They are everywhere. Thanks to reality shows and HGTV, a lot of people have decided to try their hand at real estate.
Not all agents are the same.
Your real estate agent is going to be the person fighting for you and your needs. You need a person who you can trust, has your best interest at heart, and has managed similar situations before.
Every person wants something different in terms of real estate agents. The one suggestion you should be aware of is – don’t use a friend simply because you like them.
Consider Your Finances
There are a lot of numbers to review before you take on a mortgage. First, look at how much money you have saved up.
You will need to make a down payment before you get hold of those keys. The larger your down payment, the smaller the loan, which means smaller the monthly payments.
The type of loan is going to dictate how much you need to pay initially. If you’re getting a conventional home loan, you’ll have to be AT LEAST 5% of the total value of the home down.
FHA meanwhile only requires a 3.5% down payment.
Just because these are the minimum requirements doesn’t mean you shouldn’t do more. Traditionally, the idea has been to put 20% down. This not only looks attractive to the lender but allows you to avoid the private mortgage insurance (insurance coverage protecting the lender if you pass away or don’t make payments).
Another step to take is to look at any additional expenses that are going to be tacked onto the home buying process. Some customers rush into the whole thing and then find themselves facing bills like appraisal fees, closing costs, homeowner’s insurance fees, and much more.
Take some time beforehand to see how much all of these things are going to cost BEFORE you start looking – it could change how much you have to spend on a down payment.
You don’t want to drain your savings to pay for all those additional fees.
Ready To Buy a Home? – Not So Fast!
Buying a home, especially if it’s your first, it an extremely exciting time.
Don’t get sucked into the high emotions. Take your time and before you know it, you will not only be in your new home, you will be in the right home.
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