Your home will probably be the most expensive and important purchase you ever make. That’s why it helps to prepare and research the home buying process to make sure you do things right from the start.
Looking back on my own experience from a few years ago here are some tips I’d recommend to any first-time home buyer:
1) Start saving right away
The earlier you start saving for that down payment, the easier it gets. If you want to avoid paying private mortgage insurance, or PMI, in most cases you need to save up at least 20% of your future home’s value to use as a down payment. That’s easier said than done, but it becomes a much more realistic concept if you start saving right away.
Even if you aren’t ready to buy in the foreseeable future, you can put yourself in a better position by setting aside something every month into a new home fund. Don’t forget to consult a financial advisor or accountant to see the best course of action with your financial circumstances. The bottom line: The sooner you start, the better.
2) Build your emergency fund
When you’re a first-time homebuyer, it’s easy to be shocked by the many “extras” that appear in your monthly budget. Things that didn’t exist before – like larger utility bills, home repairs, and lawn maintenance – start adding up and making a huge difference in your bottom line.
To be as prepared as possible, build your emergency fund for several months – or even years – before you commit to the home buying process. The money will be there when you need it that way, which will make the entire purchase a lot less stressful.
3) Have the right partner for your financing
There are many different mortgage loan products on the market. Not every product is right for every situation or family. Working with a local lender who knows the market and your individual situation can help not only save you money but can also help you navigate the loan process.
This is likely the biggest investment you’ll ever make, so you want the right professional to help you decide what loan products work best for you and help you get pre-approved so you have a realistic idea of what you can afford.
4) Know what you can change, and what you can’t
When you buy your first home, the whole process feels daunting. The idea of spending thousands of dollars to replace or update old or unsafe systems or outdated appliances is especially unsettling and can seem like an insurmountable obstacle.
But every home has some issues. Some of them are things you can live with, while some are things you can’t; some are things you can change, and some are permanent features.
The number-one thing you can’t change about a house is its location, so remember: When you buy a home, you’re not just buying a house, you’re buying the neighborhood. Explore the surrounding area and local resources before you submit an offer and fully commit to the purchase.
Meanwhile, other problems can be fixed, or at least endured until you can fix them. For example, I had a problematic water heater and leaky garage but those were things that I could fix as my budget allowed. If I let that issue scare me away from buying it, I would have missed out on a chance to live in a family-oriented community with great neighbors.
5) Make sure your credit is in good shape
If you want to qualify for the best mortgage rates possible, it’s essential that you get your credit score in tip-top shape. If your credit score needs work, there are plenty of steps you can take to improve it.
For example, paying down debt can improve your credit score and increase your chances of getting qualified for a mortgage — and improve your financial well-being, too. Paying down your debts can also help you qualify for a mortgage since lenders prefer to have your total debt obligations — including your new mortgage — represent no more than 43% of your total income.
6) Avoid new debts
Another piece of the puzzle while you’re preparing for a mortgage is staying away from new debts. Remember, any monthly obligations you have could stand in the way of taking out a mortgage for the home you want to buy. Try to stay away from taking out any new loans, including car loans. You’ll be in a much better place to get your ideal mortgage, and favorable mortgage terms, if you are as debt-free as possible. And once you have secured your mortgage, remember to not take on any new debts before you have closed on your new home.
As intimidating as it can be, buying your first home is a wonderful, exciting experience — especially if you educate yourself about the process beforehand.
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