It’s an exciting time, buying your first home. However, before you schedule a viewing of a property, it’s important to know a bit about the home buying process. Listed below are a few things to keep in mind to help you make an informed decision.
1. Older Home versus New Construction
There are pros and cons of whether you buy an older home or new construction. Older homes may have outdated plumbing and require a water line replacement and replacement piping by professionals like Restore My Pipes. While a new home won’t need any costly repairs, it does come with a much higher price tag. An older home may also have outdated windows and doors, real energy sappers that drive up heating and cooling costs, as well as decreasing your level of comfort. Regarding new construction, every add-on translates to an increased price.
Realters earn a commission based on the purchase price of the home. In many cases, they try to push buyers to buy in at the top of their budget. However, if you buy at the limit of what you can afford, that will lessen the amount of work you can do on the home. Additionally, if anything happens that affects your finances, it can put you at risk of losing your home. For this reason, you should refrain from looking at homes that are at the top or above your price range. Get pre-approval from the lender in hand and stay below the limit.
3. Credit Score
Having good credit isn’t necessarily a requirement for buying a home. Some lenders will fund loans with fair, or even poor credit. However, if you want the lowest interest rate available, a good credit score is needed. Check your credit score at least 6 months in advance for accuracy. If you’re bordering on fair/good credit you can give it a boost by reducing balances on credit cards to a third of the available credit. If your score is low, you may want to hold off for a year to allow time to increase it.
4. Hidden Costs
There are many hidden costs that come with buying a home. In addition to the down payment, you have a home inspection, application, and appraisal fee. You also have title searches, underwriting fees, homeowner’s insurance, and property and school taxes. If you live in a community, you may also have monthly HOA fees.
5. The Cost of Running a Home
Another reason to buy under what you can afford is the comfort in knowing that you can afford to run it properly. Depending on the age and the size of the home, utility bills can add a few hundred or more to your monthly home expenses.
6. Maintenance and Repairs
Even new construction requires regular maintenance. Wear and tear will happen and things like gutters and HVAC systems need regular care to perform well. Make sure to factor these costs into your budget prior to buying a home.
7. Sizable down Payment
Typically, if you put less than 20% down on a home, you will have to pay PMI or private mortgage insurance. This will remain in effect until you pay down the loan by 20%. This can increase your mortgage payment significantly every month. If you are not able to come up with 20%, do your best to have more versus less.
8. Types of Mortgages
There are several types of mortgages and financing options available from banks, hard money lenders, or credit unions. You can apply for a conventional mortgage with a fixed rate or variable rate. Some borrowers, tight on funds, choose the adjustable rate and then refinance it to a fixed rate after a few years. FHA loans available through the government allow for as little as 3.5% down and in many cases the seller pays for most of the closing costs. The downside of a government-funded loan is that the purchase price has a cap.
Buying your first home can be exciting and less stressful if you do research ahead of time.