The first time you purchase a home, you’ll encounter inevitable stress and questions.
How do you know how much you can afford? When should I begin saving for a down payment?
The list goes on.
So, if you’re in the market to buy a home for the first time, read on for our guide on home-buying 101!
Home Buying 101
1. Start Saving Early
The earlier you begin saving for a down payment, the better.
Traditional mortgages used to require a 20% down payment on a home. And for a $200,000 home, that means you need to have $40,000 saved.
Luckily, there are many programs and government benefits that will allow you to get approved for a mortgage with as little as 3% down.
3% doesn’t seem as bad! But some banks will require homeowners to pay mortgage insurance for buyers with a low down payment which is an additional cost each month.
So the sooner you start saving and the higher your down payment, the lower your monthly cost.
2. Know What You Can Afford
Most experts agree that only about 28% of your income should be used for housing costs, leaving about 70% of the rest of your income for other expenses and saving.
But some banks will approve people for mortgages that cost up to 40% of their income. This results in something called being “house poor.” It means that such a large percentage of their income is spent on the mortgage, property taxes, and homeowners insurance that they can barely afford other living expenses.
So just because a bank says you can get approved for a specific mortgage amount, doesn’t mean it’s a good idea.
Do the math to make sure that your monthly housing expenses don’t exceed 30% of your income at the most.
3. Keep an Eye on Your Credit
It’s important to know your credit score before buying a home because your score will influence your approval odds for a mortgage and the interest rate.
Using a tool like Credit Karma can help you see your credit score without affecting your credit (like checking your score usually would).
When buying a home, it’s a good idea to avoid opening other lines of credit by:
- getting a new car
- applying for a credit card
- getting a personal loan
Opening new lines of credit right before applying for a mortgage can significantly decrease your odds of being approved for your home loan.
4. Buy a Home for Tomorrow
Many first time home buyers make the mistake of buying a home that only meets their immediate needs.
Think about the next 5-10 years and if your family will experience any growth. Pick a home that can accommodate any children or pets that might be in the 5-10 year plan.
5. Be Mindful of Additional Costs
Buying a home doesn’t just mean putting up a down payment. You have other costs to consider like:
- Closing costs
- Professional moving costs
- Furnishing all your living spaces
Make sure to leave room in your budget for these expenses which can add a few thousand dollars to your initial out-of-pocket costs.
Now that you’re an expert at home buying 101, it’s time to find the right moving company to help you make the transition into your first home.
Contact us today for a free quote on your next move!