Buying your dream house for the first time can be challenging. You must consider many steps and requirements to ensure you don’t commit any costly mistakes.
The good thing about being a first-time house buyer is that you get to enjoy several unique benefits. Notably, when buying your dream home for the first time, you can have access to tax exemptions, state programs, and government-funded loans.
Nevertheless, despite having access to these advantages as a first-time homebuyer, you must still carefully consider your finances to make the home buying process more manageable when buying your first house. In addition, setting up your finances is necessary as it helps you ensure you don’t suffer during and after buying your first house.
With that in mind, below is a list of valuable tips to help you become financially prepared when buying your house for the first time.
Table of Contents
1. Check Your Credit
Checking your credit is one of the primary steps you should take when preparing to buy your first house. Even if it takes a long time before buying your home, performing a regular review of your credit scores and reports is always an excellent idea. It’s because the better your credit reports, the more you’ll likely receive a reasonable interest rate on a mortgage loan.
Lending solutions like Novellus Bridging will use your credit status reports as essential factors in determining if you qualify for a loan and the interest rate they can offer. Notably, if they see errors in your credit history, you may encounter difficulty qualifying for a home loan.
Ideally, you should review your credit scores and reports at least six to twelve months before qualifying for a mortgage loan. That way, you’ll have time to raise a low credit score. Also, it’s essential to check your credit scores for accuracy to dispute any errors, especially if you see mistakes that have detrimental effects on your credit health.
2. Determine The Amount You Can Afford
When determining how much house you can afford, the 28/36 percent rule is an approach that’s useful to follow.
Notably, most financial advisors recommend spending less than 28% of their gross monthly income on their living expenses and no more than 36% on total monthly debt payments, including car expenses, student loans, and credit card payments. This approach is a tried-and-tested home affordability rule that specifies a basis for what mortgage amount you’re capable of paying every month.
Furthermore, it’s worth noting that being a homeowner usually brings more expenses than renting an apartment. You need to consider other costs like electricity bills, property taxes, and home insurance. And when determining your monthly mortgage payment, note that interest rates will play a critical role. For that reason, you may consider using a mortgage calculator to ascertain what your monthly expense should be.
3. Save Money For Down Payment
A down payment is an amount of money you bring to the negotiating table when buying a property. Your down payment requirement will be dependent on the lender and the type of mortgage loan you choose.
Some traditional loans—aimed at first-time house buyers with excellent credit scores—allow loans as little as 3% down. Nonetheless, saving up for even a small down payment can be challenging. For that reason, to get started with saving, it’s worth considering using a down payment calculator to decide on the amount you should keep and then organize automatic transfer from checking to savings.
Eventually, by saving up for a down payment, you’ll get your mind at ease since a substantial down payment decreases your monthly living expenses. Consequently, it allows you to select a shorter mortgage term to let you bid farewell to your debt as quickly as possible. Preparing for all associated costs is another critical step you need to take when buying your first house. Besides the mortgage payment, you should also prepare for other expenses like closing costs, home warranty coverage, homeowners’ insurance, and space improvement expenses.
4. Prepare For Other Associated Costs
Preparing for all associated costs is another critical step you need to take when buying your first house. Besides the mortgage payment, you should also prepare for other expenses like closing costs, homeowners’ insurance, and space improvement expenses. Therefore, make sure you consider these associated costs as you save toward buying your first house.
It’s noteworthy that closing costs are a critical part of the home buying process, and they’re the fees that lenders and other real estate professionals charge when buying your house. These expenses may include attorney fees, inspection fees, recording fees, and mortgage evaluation fees.
In addition, when it comes to homeowners’ insurance, your lender may require you to have a policy on your house. And you can either buy this policy directly from your pocket or have it added to your monthly payment.
Overall, educating yourself about the home buying process and being financially ready when buying your first property can help you get your ideal home for a price you can afford. Accordingly, you can consider the essential tips given above to help you become financially prepared and make your life more manageable during and after the home buying process.