Buying your first home is a big step, both emotionally and financially. Once people decide to buy a house, it’s easy to get caught up in all the details. Rushing into a home purchase without paying attention to some basic rules can lead to future trouble. Here are five guidelines to keep in mind when you’re buying your first home.
Know How Much You Can Afford
Before you even start looking at listings, sit down and crunch some numbers. You may want that $500,000 dream home; but in reality, you can only afford a $250,000 home. Generally, the rule of thumb is that you shouldn’t spend more than 28% of your gross monthly income on your mortgage.
Most people don’t get preapproved for a mortgage before they start shopping for a home. Just 10% take this extra step, according to some estimates. Yet a preapproval can help smooth the home-buying process, since sellers can be more confident that you’ll be able to get a loan and are serious.
Remember, however, that a preapproval isn’t a guarantee that you’ll get a mortgage – it just confirms how much the lender would be willing to let you borrow.
Find an Agent You Can Trust
Finding a good real estate agent involves more than a simple Internet search. This is the person who will be guiding you through the entire home-buying process, so you want to find someone you trust and with whom you’re comfortable. Not only do you want to check into their credentials, but you should also talk to former clients. A referral from a friend, family member, or neighbor may be a good first place to start. Don’t hesitate to interview a couple of agents to find the one who’d best for you.
When looking for an agent, watch out for signs that he/she might not be a good fit. For example, you probably want to work with an agent who has experience helping other people in your price range and is familiar with the area in which you hope to buy.
Don’t Skimp on the Down Payment
The days of no-down-payment homes are largely gone. But there are still loans out there for buyers who don’t have big savings, like FHA loans and VA loans. These aren’t necessarily a bad deal – in fact, they can be a big help for first-time buyers. But generally, you want to put as much down on your home as you can reasonably afford without jeopardizing your other financial goals. Twenty percent is the number most often recommended.
Show up with a down payment that’s less than 20% of a home’s value and you’ll have to get private mortgage insurance (PMI), which protects your lender in case you default and means a larger monthly mortgage payment for you. However, the FHA recently cut the insurance payments it requires for low-down-payment loans to 0.85%.
Always Get a Home Inspection
A house that looks picture-perfect on the outside could be rotten to the core (literally). Getting a qualified home inspection will help you have the confidence that the home you’re buying is a solid investment. If you have an inspection clause in your offer, you can back away from a deal if the inspection reveals problems with the home that the seller is unwilling to fix.
If you’re prepared to make a serious offer on a home and the seller want you to waive the inspection, run, don’t walk, away. It could be that there’s a serious problem with the property the seller doesn’t want you to know about.
Are you ready to buy your first home, but aren’t sure where to begin? Please call if you’d like to review your finances, so you can turn your home ownership dreams into realty.
Copyright © Integrated Concepts 2015. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed, but should not be regarded as a complete analysis of these subjects. The appropriate professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.