Buying a home is a big decision, especially when doing it for the first time. Besides the overwhelming multitude of steps, tasks, and requirements, there is the risk of making an expensive mistake that can adversely affect a home buyer’s financial condition for years to come. Timing, as well as situational factors, must be right to avoid making precarious decisions that can potentially lead to unfavorable real estate deals. To eliminate these undesirable risks and outcomes, this article will present four important factors a prospective homebuyer should consider when looking to buy a home for the first time.
Current Financial Health
The first step of buying a home is evaluating your financial situation. This should come before going through checking out properties in market listings and choosing your dream home. It is necessary to be able to handle the purchase as well as your ongoing expenses, and auditing your current financial situation will reveal whether you’re ready to take up this undertaking or need more time for preparation.
Go through your savings and see if you have emergency savings enough to provide you with at least five to six months of living expenses. If all your savings go into the upfront payment and other expenses of a mortgage loan, you could get into an unfortunate situation if faced with an emergency in the aftermath. This is a factor even your lender will consider when you apply for a mortgage loan.
If you can give two to three years for buying a home, you can utilize certain savings vehicles that will provide you a return to keep up with the inflation. For instance, a certificate of deposit (CD) can be very helpful. While it won’t make your savings significantly more, it is still more profitable than putting your money in a regular savings account. If your need is urgent with only six months to a year, it is best to keep your money liquid such as in a high-yield savings account that is insured by the Federal Deposit Insurance Corporation (FDIC)
Mortgage Amount Qualification
The second step of buying a home is knowing the amount you qualify for a first-time home buyer home mortgage. The amount you have in mind based on your financial self-assessment will most likely be different from that of your lender who will perform a more comprehensive assessment including the amount of debt you owe, your monthly income, your stability, and tenure with your current employer, and others.
Knowing the mortgage amount you qualify for not only allows you to know your price range for houses but also sets you up for your next step. Many real estate agents limit their service to clients who have clarified the amount they afford to spend, and similarly, sellers only entertain offers accompanied by mortgage pre-approval. You can find your qualified mortgage amount by applying for a mortgage and providing all the necessary paperwork.
To negotiate the best offers, you can reach out to multiple lenders and compare their rates and fees and use one against the other, or simply choose the lender that offers the most amount.
Price of Home You Actually Afford
While more loan amount is definitely better than less, it doesn’t necessarily mean that you should take the entire amount that is approved by your home mortgage loan lender. This is a mistake common among first-time homebuyers that puts them in an undesirable situation called ‘house poor’, in which most of their money goes into monthly mortgage payments with little to spend on other needs such as clothing, utilities, and food.
To avoid this situation, you should consider the home’s total cost including property taxes, cost of insurance, repair, and renovation costs, as well as closing costs, and not just the amount of monthly payments. Overall, buying a home with a budget smaller than the lender offers will give you more flexibility in your financial life in the long term.
Type of Home
While home buyers have the perk of choosing from multiple types of home options, including traditional single-family homes, duplexes, townhouses, condominiums, and cooperative or multifamily buildings, it can be confusing and tricky on the flipside. Each type of home has its own unique features, but one may be better than the others depending on your liking, needs, and capital.
When choosing a home, it is important to thoroughly go through all their features and see how well they match your requirements. After all, you’re making one of the most valuable investments in your life where you will potentially live out the rest of your life. You should consider every feature you can think of from size, space, and neighborhood, all the way down to smaller details such as room layout and furnishings.
Scan through multiple real estate websites to help you get an estimate of the pricing of the homes that provide the features you’re looking for. You can save cost on the purchase amount of any home by choosing a fixer-upper, but this will require you to invest time, effort, as well as additional money to turn it into your dream home.
There are always multiple factors to consider when buying a home, and understanding these factors is essential for making sound financial decisions and preventing premature commitment that can lead to dire financial situations in the aftermath as well as long term. Consider the points mentioned above when planning for your first home purchase.
To avoid making costly mistakes and navigating through the process of home buying, it is safest to enlist the assistance of professionals who specialize in the subject matter. Miller Mortgage, a trusted mortgage company provides first-time homebuyer assistance that guides, explains, and simplifies the entire process of home buying. To learn more about their services, visit their website.