The purchase of a home is perhaps the biggest financial responsibility you will incur in your young adult life. There are many big signals that it could be time for your family to make the big jump, including but not limited to, a new addition to the family, an upgrade in income, or just the human desire to upgrade from an apartment. However, this step does not happen overnight. In fact, it can take weeks and months of planning. The key is to get everything right the first time, because if you don’t, you could be staring at a mountain of debt with unsatisfactory results. Here are a few things you should know before entering the housing market for the first time.
The Amount of House You Can Afford
You may be able to determine on your own how much of a monthly house payment you can afford by taking a look at your monthly income, expenses, debt, and savings. If you are still unsure of how much house you can afford, you should talk to a financial expert. This expert should not be a banker you might consider for a mortgage because they have a financial interest to issue loans that are as large as possible.
Generally speaking, you should not spend more than 30 percent of your gross income on monthly house payments. You will also need to save money for a downpayment.
Hidden Costs
Many homeowners mistakenly believe that the amount they pay each month will only include the cost of the loan. They are often shocked to see that the total they must pay includes things like homeowner’s insurance and property taxes. Depending on the size of your down payment, you may also be required to pay private mortgage insurance. You will also face the possibility of paying closing costs of up to three percent or more. This money will be used to pay attorney fees and other costs associated with the transferral of homeownership. All of these things should be considered when you are financially planning for this dramatic step.
Find a Realtor You Can Trust
Some potential homebuyers are reluctant to seek the services of a realtor for fear the fees paid to the realtor will drive up the potential price paid for their new home. This fear is unfounded since it is the seller who is responsible for the commission earned by a realtor. A savvy realtor will also pay dividends by helping to guide you through every part of the home buying process. The value of a realtor can go underappreciated, but their knowledge and resources of the area are an intangible that you simply cannot afford to miss.
Think Beyond The Present
The financial commitment involved with buying a house makes it necessary to consider the long-term plans you have for your life long before pulling the trigger on a purchase. Issues like your current and future marital status, plan for kids, and career goals are all extremely important. Mortgage and market terms may make it necessary for you to pay on your mortgage for a few years before you begin to build substantial equity. You would not want to commit to a home you will not live in for very long if this is the case.
Look Past Aesthetics
It is not uncommon for you to have a favorite room in a home before you make a purchase. It is also no stretch of the imagination to think you will spend much time thinking of how you will upgrade the space. However, make sure you think of more than just the cosmetic work that must be completed in a home. For example, it is one thing to consider the cost of the perfect cabinets or countertops for a new kitchen. But it is something entirely different to foot the bill for the supplies and labor to complete these upgrades. The cost to upgrade a home does not have to be a reason not to make a purchase. However, you should purchase a home with a full understanding of how much money you will need for repairs and upgrades.
Understand the Closing Process
A meeting will take place between your lender, attorney, and realtor when it is time to close on your new home. A lot of paperwork will need to be completed and you will be walked through the process to ensure you understand all that is happening. You will need to sign and initial all the paperwork you are given. Once you are done, you will be given your copies of all the paperwork along with the keys to your home.
Final Thoughts
The first-time purchase of a home can be both a nervous and exciting time in your life. It is important to remain as calm and focused as possible throughout the process in order to ensure you make the best decisions possible. The six tips above should help you understand a few things you should know before buying your first home.
