Buying a new home is an exciting milestone, yet it can also be stressful and complicated. If you aren’t alert, you may end up broke or purchase a home that does not suit your lifestyle. To avoid this, you need to prepare your finances in advance.
Consider Home Ownership Expenses
Your mortgage isn’t the only recurring expense you’ll have. Owning a home comes with associated expenses that you should expect. These include recurrent utility bills and other costs like repairs, homeowner’s insurance, and maintenance costs. These expenses will contribute significantly to your monthly outlays, making your new home more expensive than it seemed on paper.
Save for the Down Payment of Your Mortgage
Usually, lenders want you, the homebuyer, to pay at least 20% of the prospective home in cash. You may still get a mortgage if you make a down payment below the amount, but you will have to cover the extra cost of private mortgage insurance (PMI). With specialized mortgage programs, you can pay as little 1% to 5% of the loan amount but you will have to pay PMI. You’ll enjoy less interest over the life of your mortgage and smaller monthly payments if you pay a higher down payment amount.
Prepare Your Credit
Your credit record is a crucial factor that lenders will consider when you apply for a mortgage, so you must have good credit. How do you achieve good credit? You start by paying off debt exceptionally high-interest credit cards and student loans. Clearing your debts will allow you to have some money for the down payment and lower your overall debt to improve your credit. Debt payoff is essential for lenders when assessing your debt-to-income (DTI) ratio. Lenders look at your DTI to determine how much loan you can access.
Go for a Property You Can Afford
When buying your first home, consider the size and condition of the house. Remember, a large house isn’t always good. Heating and cooling a large home may break your budget. Check the condition of your prospective home. You don’t want to buy a cheaper property, spend more on home improvements, or renovating the entire house.
Consider the Loan Type and Payment Options
There are different types of loans and payment options available, and a little research may land you the best loan and payment options. With a short term (15 – 20 years), you can lock in a low rate. 30-year loans are popular because the long-term payments mean lower monthly payments, although the interest rate may be slightly higher. You can also choose between adjustable-rate and fixed-rate mortgages. Adjustable-rate mortgages will vary over time while fixed-rate remain constant despite changes in the market or economy.
Request a Home Inspection
Once you find your ideal home, ensure you get a home inspection. Home inspectors will identify hidden and potential problems before you buy the home. It can save you numerous repairs and costs in the future. You can also negotiate a lower price if you realize the home will require significant repairs.
Buying your home is an exciting milestone. However, you need to prepare your credit history, the amount you are willing to spend, the down payment for a mortgage and the type of loan. Remember, home inspection results can offer grounds for you to exit a deal without losing your money.
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