RISHI KAPOOR (Real Estate Agent)
Buying your first-ever home is the most exciting experience. That being said, it can also be rather overwhelming because, chances are, it is one of the most significant purchases you have ever made so far. It can become even more so when you see properties selling for over $350,000 out there!
When houses don’t stay on the market for more than two weeks, and sometimes even less, you might feel obliged to make an impulsive decision and invest in a property. You must refrain from doing that because your savings could take a severe hit, and this could jeopardize your future, your existing mortgage agreements, and your retirement plans. Is there a fix? There is! It’s this list of tips for a first-time homebuyer! So, let’s get into it.
Pay Off Your Debt & Have an Emergency Fund
Before you consider buying a new home, be sure to pay off all your existing debt or wait until you have the financial means of doing so. Owning a home can be expensive because you are responsible for everything. So, not only do you need to be debt-free, but you also need to have approximately 6-months worth of payments set aside in an emergency fund for your home.
The 25% Rule
Avoid becoming too attached to a home you see before figuring out if you can even afford to buy it. You must account for all the payments you will have to make in a month, such as insurance, taxes, HOA, and more. As such, the total of these should not exceed 25% of your take-home pay. Do the math, and if you can afford it, only get attached to the home then.
10-20% Down
When you are saving up for a home, you have to also save up for a downpayment. The amount of money you pay depends on the house’s purchase price, but many pay 10-20% or sometimes more, depending on what they can afford. If you pay 20% or more in your downpayment, you won’t have to pay for private mortgage insurance (PMI). This kind of insurance only protects the mortgage company in case the property ends up in foreclosure.
Save for Closing Costs
On top of your down payment, you will also pay a hefty closing amount of approximately 3 to 4% of your total house’s value. If you’re not sure what your closing cost will be, it always helps to discuss these things with your lender in advance so that you are not blindsided when the time comes.
Mortgage Pre-approval
Once you are satisfied that you have saved up enough for a downpayment and your closing costs, the next step is to get preapproved for a mortgage from a lender. You must get preapproved before starting your home search because it will improve your chances of getting the house you like. This will also get you a general idea of how much home you can realistically afford.
Look Within Your Price Range
The way to do this right would be to find homes within your price range online and then show them to your realtor so they understand what kind of properties they need to show you and within which price range. Your realtor will then find similar properties within your price range on multiple listing services (MLS).
If you follow these tips and tricks closely, you are set for real estate success! You’ll have found your dream home in no time!
