First Time Home Buyers: Lessons from Experience
Right now is a great time to buy a home, with prices having dropped so much on homes. Especially for first time home buyers, these prices are making people think about paying the same in a mortgage as they are paying to rent. While this can be a smart decision, this is not a decision to be made without good planning. Otherwise, you might be making a mistake that will cost you a lot of money.
Many folks are unaware if they have the ability to buy a house. When I mention ability, I mean qualify or having good credit, enough income and the necessary employment history. The credit score is most important indicator used in the qualification for a home. If your score is too low, even if you make a ton of money, you would be unable to obtain a mortgage loan. Also, credit problems can take the longest to correct, in terms of a home purchase. So before you go apply for a loan, pay for a tri-merge credit report and score. Make sure the score you are seeing is a FICO score and I recommend going to one of the 3 credit bureaus. I also recommend that you spend some time on the site in order to read some of the educational material regarding your credit.
Have your been employed in the same job or same career field for at least 2 years? If the answer is no, you can not get a loan to buy a home. Although the 2 years in the same career field can be tricky, this is sometimes at the discretion of the lender. Also, if you are commission based, be prepared to be highly scrutinized because you have the highest risk of failure. Finally, if you know you will be quitting or changing jobs, you may still be able to get the loan, but you may want to really consider if it is a good idea to buy a home in the middle of a change like that.
Planning for a new mortgage payment can be the difference between enjoying your new home and hating your new home. TV advertisements talk about rates and payments, but the payments you see on TV do not include your property taxes or your homeowners insurance. These two additional items can increase your payment greatly. To plan for this, you should first do a budget to know how much of a payment you can actually afford. Once you have done this, I recommend that you then search for homes that you would be interested in purchasing. When you find a home you like, find out what the property taxes would be and how much it would cost to ensure. This will allow you to prepare for an actual home payment. Finally, I would suggest that you try to follow your budget for 6 months prior to buying a home.
Closing costs, down payment, appraisal, and home inspection are all costs that you will need to plan for. Your appraisal and home inspection will probably be just under $1,000, but the down payment and closing costs will depend on the mortgage that you qualify for and the terms of the purchase. These are best to discuss with a mortgage officer and real estate agent to be more accurate, but there are many online resources that can help at least ballpark these costs for planning purposes.
If the debts you have are more than 60% of your gross income, you can not get a traditional mortgage loan. Although since lenders do not use cell, electric, cable or other non-credit payments in this calculation, if you ratio is over 60%, you probably don’t have the money to make the payment anyhow. However, your debt to income should really be below 50% and the lower the better when planning for your home purchase.
Now for the wildcard topic, costs of ownership. Let us assume that you did everything else right and you have purchased your first home. Congratulations, but did you remember to plan for all the items necessary to keep up or furnish your new home? Most homes have a yard to maintain, so you will need a lawnmower and a shovel, weed killer, etc… Do you have the money left to buy these items? While you may or may not have enough furniture to make your new house look like a home, do you at least have window coverings, or the money to buy them? Heck, moving in and paying for all the utilities alone can add up.
The biggest items to be prepared for are things that break. You are now the owner and can not call the landlord to come fix it. You can call someone to fix it, but now it is your bill and home repairs can be quite expensive. Just be prepared and do not say you were not warned.
Want to find out more about first time home buyer programs, visit our site on how to choose the best home owners insurance prices for your needs.
