When it comes to the world of real estate, first-time home buyers are often confused and anxious. There are so many details to keep track of and so many more things that can go wrong. Even seasoned homeowners who have bought and sold several properties previously feel stressed out at times.
The most challenging step when buying a home is determining how much you can actually afford to spend on a property. Whether you’re looking for homes or condos in New York City or another high-priced area, you may be better off renting for now until your income increases enough to comfortably afford the monthly payments for a mortgage loan.
Mortgage pre-approval.
Mortgage pre-approval means that the lender has determined that you meet all the requirements to get a mortgage and have been approved for financing. This can be done before you even begin looking at homes or deciding on a location.
There are many reasons why you should get pre-approved for a mortgage:
- It helps ensure that your financial situation is strong enough to qualify for the home loan amount and rate you want, even if interest rates rise in the future
- It gives you peace of mind knowing that your finances will be ready when it’s time to move into your new home
- You may need proof of funds when applying for other loans (such as an auto loan)
Save up for a down payment.
Even if you’re buying a home that’s 100% financed, meaning you’ll be paying off your mortgage over time, it’s important to have some cash in the bank for that down payment. In most cases, this will be the biggest chunk of money you’ll need to save up before making an offer on a house. Your down payment percentage is usually determined by how much money you have saved and what type of mortgage loan you have.
A traditional 20% down payment is considered standard for most mortgages but there are other options available where less than 20% is needed as long as a private mortgage insurance company (PMI) is used instead of paying for private mortgage insurance yourself with your own funds. While PMI can be expensive, keep in mind that after 15 years or so when your loan term expires and all payments are made up until then—or 20% has been paid off—you’ll stop paying PMI altogether!
Research the homebuying process.
- Research the homebuying process.
- As you begin researching the homebuying process, it’s important to consider the pros and cons of buying a house. The first step in the process is understanding how much money you can afford to spend on a mortgage and what type of mortgage works best for your goals. Be sure to research what kind of down payment is required in order to buy a home, as well as how long it takes from start-to-finish and what documents are needed at each step along the way.
- If you’re not sure if now is a good time to buy or sell your property, consider speaking with an agent who specializes in real estate sales or leasing (also known as real estate agents). They will help determine whether conditions are favorable for selling or renting out a property before making any decisions about whether it’s worth investing further time and money into renovating its interior design
Budget for closing costs.
Closing costs are the fees associated with closing on a mortgage. These costs vary, but they’re typically between 2-5 percent of the purchase price. They include:
- Title search and attorney fees
- Lender’s origination fee (typically between 0.5% and 1%)
- Credit report fee (typically $40 for each lender)
- Flood certification fee (varies by state, but often $100-$200)
- Property insurance premium for 1 year (varies by state, but typically $300-$600)
Consider an FHA loan.
The FHA loan is a mortgage insured by the U.S. Department of Housing and Urban Development (HUD). FHA loans have low down payments and closing costs, making them more affordable than conventional mortgages for many borrowers. And, unlike conventional loans, which require private mortgage insurance (PMI), FHA requires that borrowers pay for their own PMI until the loan balance reaches 78% or below.
FHA loans can be used to purchase primary residences as well as second homes and investment properties—even if you’ve been turned down for other home financing in the past due to poor credit history or other factors.
There are three different types of FHA loans: The most common type is called an FHA mortgage; it’s available to qualified buyers who don’t have enough cash on hand but still want a low down payment option.* Other types include an FHA streamline refinance loan* or an FHA cash-out refinance loan.*
Look for a fixer upper home or condo.
Fixer-upper homes are a great way to get into the housing market. They’re also a good investment, because they have lots of potential. You can learn about home repair and maintenance while you’re living there, which may be useful if you ever decide to buy another fixer upper in the future.
The most challenging step when buying a home is determining how much you can actually afford to spend on a property
The most challenging step when buying a home is determining how much you can actually afford to spend on a property. Even if you have some excellent credit, the realtor will interview you to determine your income and expenses. If your financial situation is not stable enough, or if there are any potential issues with it, that may cause some problems later on in the process of buying the property. You will also need to consider other costs such as maintenance expenses, utility costs and taxes.
It is also important that you look at all aspects of owning this property including resale value and appreciation of the property over time. If a property has increased in value by 20 percent over four years then it makes sense for someone who wants their investment portfolio grow in value quickly without having too much risk associated with it like stocks do where they could lose money quickly due to market fluctuations.”
Conclusion
Buying a home is an exciting milestone, and it’s likely the biggest purchase you’ll ever make. So don’t jump into it without doing your homework.
With these helpful tips, you can feel confident when purchasing your first home!