There are many firsts in life! Your first steps, your first car, your first love, your first job, and now your first home! You have decided to embark upon “the American Dream” but wait a minute! Have you considered everything that comes with owning a home? Buying a home is one of the largest financial investments you will make in your lifetime. Therefore, there are significant things you need to consider before purchasing the home of your dreams.
It begins with deciding what you want out of a home. When figuring out what type of home you want, you should think of the future as well. You do not want to buy a one-bedroom condominium or a two-bedroom townhome if you plan to get married and have kids within three to five years of your purchase. You want to write a list of the things you must have in your home versus things that are nice to have. As they say in real estate location, location, and location matter and school district plays a key role in the future resale of your home. Decide if you want to live within or outside of the city limits. Once you have an idea of what you want, you can start researching homes for sale that match your criteria. Remember that you will not find a home that checks off all the boxes unless you build it, but you can find one that checks off the most important things for you.
Another factor is your credit score when purchasing your perfect home. Your credit score will determine your interest rate. A score greater than 700 could save you hundreds of dollars on your monthly mortgage payment and thousands of dollars in interest over the term of the loan. It is one of the most crucial factors that lenders review to determine if they will approve you for a loan, the amount of the loan, and the loan’s interest rate. The higher your credit score, the lower your interest rate, and the greater your savings over the life of the loan.
A common mistake that first time homebuyers make is not getting lender’s approval prior to looking for a home. Most Sellers will consider you a serious Buyer if you have a pre-approval letter. A Seller would more than likely accept your offer with an approval letter because it shows the seller that your finances are stable, and you can afford the home. During the pre-approval process, the lender may approve you for a loan that is far greater than what you think. Therefore, it is important to know your budget and only buy what you can afford. In 2008, every loan approved was not affordable which resulted in the mortgage crisis that sent the stock market into a meltdown. When deciding what you can afford, it is important to take into consideration all the expenses related to a home purchase including repairs. You do not want to buy your dream house and not be able to afford anything else because you are house rich and cash poor. You should not spend more than 35% of your money on mortgage payment, property taxes, homeowner’s insurance, and homeowner’s association (HOA) fees (if applicable).
A little surprise that catches most Buyers off guard is the amount of closing costs. You want me to pay what?! As with anything that we want to purchase, we should count the costs. You need to SAVE for a home before buying a home to make sure that you have enough money to pay for the following:
- Earnest Money (good faith deposit) – the amount of money you must provide with an accepted offer which is usually 1-3% of purchase price.
- Down Payment – percentage (usually 3-20%) of the home price you pay depending on the type of loan.
- Closing Costs –fees that you must pay at settlement for inspection costs, title insurance, escrow, etc.)
- Additional Furniture – common “out with the old and in with new” in your new home.
- Home Improvements – new floors, cabinets, counters, landscaping, etc. as applicable.
Remember, buying a new home is an incredibly stressful process. It is important to have a knowledgeable, experienced, and enthusiastic Real Estate Agent in your corner fighting for you. A person who will keep you on budget and help you to negotiate purchase price, fees, and interest rates. Homeownership is a major investment, and you want to make sure that you find the right home at the right price in the right location, a home that would provide you with years of wonderful memories.
Are you a First Time Home Buyer? Have you count the costs? Schedule a 15-minute consultation at firstname.lastname@example.org if you are ready to take the leap to homeownership and would like to know how you can pay your mortgage off early.