Your first home is perhaps the milestone of your life. But for someone with no knowledge of the real estate market and how mortgages work, the process of buying a home for the first time can be an overwhelming experience. But as with any major undertaking, the key to a smooth home buying process is a clear plan, which is exactly what this guide will help you make.
Figure Out How Much House You Can Afford
Fortunately, this step is easier than you think.
- Start by dividing your monthly net income (after taxes) by three. If you make $2,100 a month after taxes, you should be able to afford $700 in monthly mortgage payments.
- Alternatively, you can divide your annual gross income (before taxes) by 40. So, if you make $50,000 a year, you should be able to afford $1,250 in monthly payments.
Start Saving for that Down Payment and Other Costs
One of the biggest obstacles of taking out a home loan is the down payment, ideally, you should be able to pay 20 percent of the total loan amount. You also have to consider expense such as:
- The cost of moving your belongings, which can balloon to over a thousand dollars depending on much property you’re hauling and how far.
- Property taxes
- Homeowner’s insurance
Bottom line? Start saving as early as you can for the down payment and unexpected moving expenses.
Choose a Neighborhood
Your choice of neighborhood to live in ultimately depends on your specific needs and budget. And the best way to make that choice is to visit different neighborhoods. Also, ask your friends living there what they love and don’t love about the area.
You can whittle down your choices by running an online search for homes in every neighborhood you’re eyeing. Remember that the farther away a neighborhood is from the CBD, the lower home prices usually will be. And be realistic. As much as we’d all love to live in the Upper East Side, not everyone can afford it.
Check Your Credit Score and Debt
Your credit score and debt are perhaps the two biggest factors that will influence a lender’s perception of you as a borrower. Your score and amount of existing debt will determine how much the lender will be willing to lend you plus how much interest you’ll be charged. So, as early as now try to pay off your debt and make sure to pay all your bills on time before taking on a loan.
Weigh Your Options Carefully
Don’t rush to choose a home that catches your fancy. A good rule of thumb to give yourself 24 hours to make a decision. The cheapest place may be too rundown or located in an unsafe part of town. If you pony up for a pricey home, you might end up living from paycheck to paycheck just to pay your monthly mortgage payments. Weigh your options carefully.
If you would like to learn more about looking for homes or perhaps need assistance to pre-qualify for a mortgage, get in touch with mortgage advisor Chris Lamm for a complete discussion on your finances and the home buying process.