If you are thinking about buying your first home, there are some things you need to consider, and what strategies may be beneficial to you. An article by nerdwallet outlines some great financial tips for first time homebuyers. Here are a few of them, with my input as a bankruptcy attorney:
Save! Everyone knows you need to save for a down payment (a minimum of 3% – up to 20%) but there are other costs you need to think about too!
- Closing costs can run 2% to 5% of the loan amount
- Move-in expenses – everything from repairs to upgrades and furnishings.
How much can you afford? It’s not just about the mortgage payment! You need to think about:
- Real estate taxes
- Homeowner’s insurance
- Property maintenance
- Savings for unexpected repairs
Know where your credit stands.
- Get copies of your credit reports.
- Pay your bills on time.
- Keep credit card balances low.
- Don’t open new credit cards.
- Don’t apply for auto loans.
- Track your credit score.
Understand mortgage options and which is best for you.
- FHA loans, backed by the Federal Housing Administration, allow down payments as little as 3.5% of the loan.
- Conventional loans – some are geared for first-time buyers and require a down payment as low as 3%.
- USDA loans – these loans, guaranteed by the U.S. Department of Agriculture, are for rural homebuyers. Some don’t require a down payment.
- VA loans are for current and veteran military service members, usually don’t require a down payment, and are guaranteed by the Department of Veterans Affairs.
Explore first-time homebuyer assistance programs.
- Some states, counties, and even cities offer first-time homebuyer programs.
- Some offer:
- Low-interest rate mortgages
- Down payment assistance
- Closing cost aid
- Tax credits
- Understand mortgage rates and fees
- Different mortgage companies have varied interest rates, origination fees, and discount points.
Get a mortgage preapproval
A preapproval letter is an offer from a bank or lending institution to loan you a certain amount of money under certain conditions. This letter is needed to make an offer on a home. Make sure your approval is for an amount you are comfortable spending.
Choose a real estate agent
Not all real estate agents are the same. You want someone who understands what you are looking for, who you feel is on your side, and who is experienced in helping first-time buyers. Some agents will even discount their fees to save you some money.
Know what neighborhoods and types of homes you are interested in.
- From condos to townhomes to single-family homes that are move-in ready or are fixer-uppers, knowing what you are looking for will help your realtor find you the right house for you.
- If you have children or are planning on having children, finding a home in a good school district is important. Do you want sidewalks, off-street parking, a large yard, or a walkable neighborhood?
- Consider taxes and homeowner association fees.
Stick to your budget. It is easy to get swept away when looking at homes outside of your budget. Create a budget, and stay in your comfort zone.
Check out open houses – even if they don’t seem like your dream home. Open houses are a great way to define your must-have, want, and cannot-tolerate options in a home.
A house is a great investment, but only if it doesn’t cause you financial stress in the long run. Therefore, take to heart these financial tips for first time homebuyers. If you need help getting your finances in order, or guidance on the real estate process, we can help. Call us today, we will listen and help guide you.