Buying your first home is one of the biggest financial steps that you will ever make. It is important to take this decision seriously. You need to take the time prepare yourself in every aspect in order to make your home a blessing, and not a negative experience. Here are the basic steps that you should follow when it is time to buy a home.
Determine If You Are Ready to Buy a Home
You should determine if you are ready to buy a home.
Home ownership is a lot more expensive than renting. You are responsible for paying for all the repairs. You may also have added utility costs, such as garbage and water. In addition to that you will need to pay for taxes and insurance related to your home. These costs add up quickly, and if you are not financially prepared, you may end up in a very negative position. You should take the time to get out of debt and save up an emergency fund, before you purchase your first home. You should definitely get rid of all of your credit card debt first. You may be under pressure to buy a home from friends or family, but you should wait until it feels like the right time. Other circumstances like knowing you will need to move in the next few years for work means that you may need to wait to buy a home.
Start Shopping for a Loan
Take the time to shop for a loan. You need to get pre-approved before you shop for a home.
This will help you to look within your price range. You should contact at least three people before you decide which loan to take. A mortgage broker will look at several different loan companies to find you the best rates. However, your small local bank or your credit union may have options that will save you money as well.
Once you find a loan with the correct terms you can begin shopping.
Find the Best Payment Options and Loan Types
When it comes to your mortgage you may be surprised at the different loan types and payment options available to you. It can be baffling when you think about ARMS and PMI. Usually a fixed rate 15- or 20-year loan is the best option. This can help you lock in a low rate. You may be considering creative financingto cover the down payment, but you should be careful when you make these choices. You want to build wealth with your home purchase. If you make the wrong choice than you may end up hurting yourself financially. If the market drops, or if you need to move sooner than you planned, you may find that you are underwater on your mortgage and you owe more than your home is worth. A down payment can help you avoid that and makes it easier to sell if you need to move.
Be Honest About What You Can Afford
You also need to determine how much home you can really afford. A good rule of thumb is to keep your mortgage along with your taxes and insurance between 25 and 30 percent of your income. Other experts advise that your home cost be limited to two and half times your annual salary.
It can be crippling if you are house poor. If you spend too much on your mortgage you may not be able to meet your daily obligations let alone save for retirement. A smaller house is worth the peace of mind. If you are carrying debt (credit card or student loan debt), you should keep your house payments on the lower end of that amount.
Find a Good Realtor
Once you have determined how much you can really spend and are pre-approved you should find a good realtor. Your realtor should listen to your wants and needs carefully. She may make recommendations or explain the market to help you find a home that suits your needs and that you can afford. She should offer several different options. Once you make an offer your realtor should work to negotiate terms that you are happy with. A good way to find a realtor is through the recommendations of friends and colleagues.