Buying your first home can be a financial investment as well as an emotional investment. You are entering the next phase of your life, embracing a whole new set of responsibilities and opportunities, and making major decisions that can have a lasting positive impact. You want to get it right — and you are not alone. Nearly half of today’s homebuyers are first-time buyers, according to The Zillow Group Report on Consumer Housing Trends for 2016.
Here are some tips to help you on your journey to a successful home closing and an emotionally satisfying home purchase.
- Get your finances in order. Start by checking your credit score. A higher score could give you a lower interest rate. A weak score means you may not get a loan. A score of 720 and above is generally considered good. If you have a low score, focus on reducing debt and paying your bills on time.
- Have cash reserves in the bank. It’s recommended (not required) that you put down at least 20 percent of your home’s purchase price as a down payment. This allows you to avoid paying private mortgage insurance (PMI). PMI is typically 1 to 2 percent of the value of the loan, which is divided into monthly payments.
- Prepare a budget. Figure out how much money you can put toward a home. Your house payments (mortgage, maintenance, taxes) should not exceed 28% of your gross monthly income, recommends the National Association of Realtors (NAR). So, for example, if your monthly (before-tax) income is $6,000, multiply that by 0.28 and you’ll see that you shouldn’t pay more than $1,680 a month on your home.
- Get pre-qualified. Partner with us as early in the process as possible. We’ll ask for all of your financials and interview you to have a clear understanding of how much house you can afford and how much cash you’ll need at the closing. If you qualify for a certain amount, be sure you can realistically and comfortably pay that amount. Buying a smaller house affords you more breathing room for unforeseen expenses.
- Choose the right real estate agent for you. They will be by your side to explain the process and guide you in making the best decisions at every step. Find an agent who knows the area where you want to purchase, will move quickly when a new listing goes on the market, and will advise you honestly on preparing your offer and potential problems with a home that you may not notice.
- Figure out the type of loan you want. We will go over all of your loan options and help you figure out the best loan for your individual situation. You may prefer a fixed-rate mortgage that spans 30 years, so you have consistent and lower monthly payments, or you may prefer to shorten the term to 15 years and have higher payments, but a lower interest rate.
- Consult a tax advisor to see if you qualify for tax breaks. First-time homebuyers may get a break on mortgage interest deduction for brand-new mortgages, which are typically interest-heavy. If you purchased discount points for your mortgage, basically pre-paying your interest, these may be deductible.
- Research homeowners insurance. Basic insurance typically covers fire, theft, storm damage and liability should someone get injured on your property and sue you, according to LearnVest Planning Services. But you can also add on riders for things like expensive jewelry, furniture and home office equipment, as well as choose to get additional flood insurance if your home is in a flood-prone region.
- Have realistic expectations. Don’t expect perfect. You may find the size house you want but the price is too high, or you find the perfect neighborhood, but the houses are too small. Decide on what you must have in a house and also what you can live with.