It's an exciting time. You have saved and are finally financially secure enough to begin the process of purchasing your first home.
While it's an exciting time, it's also a scary time. Buying your home is the single largest purchase you have ever or will possibly ever make. You want to make sure you get it right and don't overpay. There are some critical things that you should consider when buying your home.
Here are our top five things to make sure you know before you pull the trigger on your purchase.
Make sure you can afford the homes you are looking at. It is easy to get swept away in the looking process and finding your dream home. Smart financial advisors suggest not committing more than 28% of your income on living expenses.
There are many other variable costs to consider, not just your mortgage amount. For example, the home owner's association fees, utility bills, taxes, and insurance. All these together can add a hefty amount to your bottom line.
Many first time home buyers don't have the full 20% to put down on their new home. That's okay, many programs are available such as FHA loans that don’t require 20% down. The flip side of that is that you will be paying mortgage insurance and will also have to fund an escrow account.
The escrow is funded by adding to your monthly mortgage payment. This fund is used by the bank to pay for your home owner’s insurance and taxes.
Length of Stay
Many people talk about purchasing their starter home. You will want to pay careful attention to the amount you are paying. If you are considering owning your home for under 5 years before upgrading to a new home, you may be better off renting and saving aggressively while you are waiting to purchase.
Some factors may negate the renting aspect, such as a hot housing market. If housing prices are on the rise, it may make financial sense to purchase the home and hopefully make money on the flip. You may also consider renting it out when you move for additional income.
Getting pre-qualified is an essential first step in your home buying venture. By going through this process, the lender can help advise you on a healthy budget based on your debt to income ratio. Going through this process can be a bit of a headache initially, but it is well worth it in the end.
In today's housing market, it is not unusual for sellers to get multiple offers on their property. When you have your pre-qualification letter in hand, that can be a beautiful thing for sellers. The last thing they want to do is accept an offer and have it fall through because of financing.
You can feel confident when making an offer on the home you wish to purchase that you will not have any further issues going through to closing. This will significantly reduce your stress.
One of the last considerations but certainly one of the most important is should you purchase a home warranty. Home warranties are different than homeowner's insurance. Home owner’s insurance covers significant events and damage such as fire, weather-related, and water damage.
A home warranty is basically a contract between the homeowner and repair specialist that offers discounted repair and replacement on significant components of your home. Things like your air conditioning, plumbing, electrical, and even some larger appliances.
Some lenders can factor the home warranty into your mortgage payment others will not. However, most warranty companies offer flexible payment plans so you can budget it into your cash flow.
There are many things to consider when you are thinking about purchasing your first home. Make sure you take your time to evaluate all possible angles to ensure a positive experience. When you get your pre-approval letter, you will see that you are most likely approved for more money than you initially thought you wanted to spend. You do not have to max out your loan. By making a smart financial decision when purchasing your home, you leave yourself open to having additional funds to cover your regular household expenses without straining your budget. If there is room, consider purchasing a home warranty for a short period at least, to help you cover unexpected costs which can quickly add up. Happy house hunting!