Buying your first home can be really exciting. However, it can also prove very overwhelming for some, especially when you notice houses being bought at medians that measure around $260,000, as well as houses disappearing from the market in three weeks or less.
If you want to know what to consider when buying a house, then you’re exactly where you need to be right now.
Do you feel ready to purchase your first house but don’t know where to start? Even though you happen to be a first-time homebuyer, you don’t have to allow the whole process to be a daunting task for you.
Let’s take a look at a few things you need to consider before you buy your first home.
Determine What Kind of Home Loans You Can Afford
Before you allow yourself to get attached emotionally to a particular home, review your monthly budget and see what kind of house you can afford. You need to have space in the overall budget for other things.
This means that you need to ensure your monthly home costs (including insurance, taxes, HOA fees, etc) aren’t going to be over twenty-five percent of your monthly income.
For instance, let’s say you’ve got a monthly income of $5,000. Multiply this by twenty-five percent to determine the maximum monthly home payments.
Based on 15-year mortgage examples, with four percent fixed interest rates, below are some of the housing solutions you can afford:
- $187,767 house (10% down payment) is $18,777
- $211,238 house (20% down payment) is $42,248
- $241,415 house (30% down payment) is $72,424
This is one of those easy ways to find a number that you can manage. However, don’t forget that homeowner’s insurance and property taxes will affect monthly payments.
These numbers will also need to be factored in before one settles on a maximum price.
Know Your Credit Score
One of the biggest things financial institutions consider before handing out a loan is the applicant’s credit score. If you’ve got good credit, not only will you get approved but you’ll also get some of the most favorable terms.
However, if you have a low credit score you’ll, most likely have a difficult time getting approval and if you manage to get one, the interest rates you’ll be awarded will be very high.
Individuals can check their credit scores for free on websites such as Credit Sesame and Credit Karma.
Review all the reports to determine whether there’s room for improvement. If you’ve got open credit cards, ensure the balances are paid down below fifteen percent of the limit so you can maximize your credit score.
This will also play a major role in the types of home loans you’ll be eligible for.
Pre-Approvals For Mortgages
The next thing you need to do is to try and get a pre-approval before you begin looking for your new home. Getting mortgage pre-approval letters is a fairly straightforward and simple process.
You need to communicate with a lender, which can be done entirely over the phone. Your credit report will then be pulled by a loan officer who’ll then ensure your score meets the minimum credit requirements.
You’ll also need bank statements, paycheck stubs, tax returns, and W2s to verify the income you bring in every month and if you’re able to afford the loan.
Pre-qualification letters are very different from pre-approval letters. Pre-qualification basically means you talked to a lender who pulled up your credit score but didn’t verify your bank statements, income and work history. Many homeowners won’t accept offers that have pre-qualification letters.
A pre-approval letter can usually be gotten within an hour or so and the letter will often have the maximum loan amount that you qualify for.
The documents one needs to get approval include:
- Tax returns for the past two years
- W2’s and paycheck stubs
- Bank statement for the last 2-3 months
- Proof of down payment
Get A Home Inspection
Mortgage companies usually don’t require home inspections to close on a home. But, the home inspection should never be skipped.
Even though the home may be brand new, you should still get a home inspector to make sure that there aren’t any potential problems. Home inspections averagely cost around $350-$450, depending on the property’s square footage.
If you identify any problems you can have them repaired by the seller before closing, or have the price reduced so that you can repair the issues on your own. Avoiding the inspection could end up costing you thousands down the road.
Hire A Real-Real Estate Agent
Many first-time homebuyers usually make the common mistake of not seeking the assistance of a realtor, as well as working hand in hand with sellers agents. This happens to be a very big no-no.
Sellers agent will give their loyalty to the buyer and ensure that they first lookout for all the interests before anything else. This is why you might want to strongly consider getting your very own realtor who’ll work hard on your behalf.
Yes, real-estate agents do get a pretty handsome commission when they sell a house, however, you need to remember that this is not a fee you’ll have to pay from your own pocket. It is built into the home’s sales price and the seller of the home usually expects to settle the buyer’s agent fee.
Speak to Different Lenders
When looking at mortgage solutions, don’t just go with the first financial lender that approves you. Always try to compare loan offers from different lenders to make sure you are getting your hands on the best deal possible.
Each lender will usually have their own rates. All mortgage institutions need to give the borrower a loan estimate within 3 days.
What to Consider When Buying a House
The first house you buy is usually a big purchase. In fact, it might just even be the biggest purchase you will have made thus far. This is why you do not want to risk ruining things.
With that said, what to consider when buying a house doesn’t have to be something that keeps you up all night. Hopefully, this article has helped show you why.
For more information on home buying and financing, check out our blogs on the subject.