When buying a home for the first time, most buyers often find themselves at the mercy of the process. Real estate and lending professionals are there to help you accomplish your goal of finding and financing your new home, but they are not there to give you personalized advice to help insure that you make the best possible decisions for you and your specific situation.
As a long time real estate agent and consultant I've dealt with thousands of buyers and sellers and seen all kinds of situations. And I was once a first-time buyer myself. As a result, I've got a list of tips and tricks that will help you better navigate that first home purchase, reduce stress and make better decisions.
1. Decide what your maximum monthly payment will be BEFORE you start looking for a home.
This is usually the biggest and easiest mistake to make - falling in love with a home before you know how much it is going to really cost to own and maintain it. Buyers often end up buying more home than they can really afford because they look at houses without some hard numbers in mind.
There are a few rules of thumb you may use to make this process easier. First, the old FHA 36% rule was a good guideline. It said that 36% of your gross monthly income should be your maximum allowable monthly payment, including your escrow amounts for taxes and insurance.
The caveat here is that you have to pay taxes before you bring home that paycheck in most cases. So, I strongly recommend using your net take-home pay as your monthly income amount. So 36% of your take-home pay is a more practical and affordable way to calculate a stress free payment.
Remember that your lender will qualify you based on gross monthly income, not the actual amount you take home, so don't let them over-qualify you for a payment that will put too much pressure on your actual budget.
It's important to keep the cold hard numbers in mind, so that you do not buy more house than you can afford. If you use an agent, establish from the get-go what your home price range will be, based on a payment that is affordable for you.
2. Don't forget that taxes and insurance will be added to your monthly principal and interest payment.
Unless you are making a large down payment, your taxes and insurance will be included as a portion of each monthly payment. This is known as a PITI. "principal", "interest", "taxes" and "insurance".
If you are using an FHA or VA, or other government insured loan there will usually be a funding fee and/or a Private Mortgage Insurance fee added to your payment each month in addition to the PITI. Don't forget to include these items when looking at the actual cost of your home purchase.
First-time home buyers often have no idea what their actual monthly payment will be until they get to the closing. This is the wrong time to find out that your payment will be higher than you thought. If you need specific details on these costs your lender or agent should be able to help you. Keep your agent on target when it comes to finding homes in your desired price range.
3. Reduce your loan costs and build equity faster with a good pre-payment strategy.
If you have not read my article on using pre-paid principal payments to reduce your interest and carrying costs, read it here. You can build your own flexible-payment mortgage with this strategy.
4. Don't forget about maintenance costs.
Once you have your home you'll need to keep it in good condition. Over time you may need to paint your house, replace worn carpeting, replace the hot water heater, or any number of other repairs that will come up during your time in that home.
You may also wish to add other items such as fencing in your back yard, adding a screened in porch or making improvements. These items can help you build value into your home but they do come with a cost. And homes that are not well maintained simply will not hold their value.
Plan ahead for maintenance costs. Buyers who max out their budget on the mortgage payment often have little or no money left for maintenance or repairs. This is so common these days that many neighborhoods are getting more and more run-down and losing value. Saving as little as $50 each month for future maintenance costs can help you keep your home looking beautiful. And when it's time to sell and move up to a bigger home, you'll be able to sell faster and for more money.
In closing I'd also like to note that the traditional home buying and lending process is often not very friendly to buyers on a budget. It's important to guard against being influenced to purchase above your means. Those stainless steel kitchens with granite counter tops are impressive, but they are not much consolation when you are in foreclosure. Today one of the greatest problems in the housing market is an emphasis on buying to impress others instead of buying within our means.
A happy home-owner is one who chooses a home that is both comfortable and affordable. Buy within your budget and you'll be able to build equity and work your way up to nicer and bigger, without the stress and frustration that result from taking on too much debt. ***
About the author: Donna S. Robinson is an 18 year veteran of the real estate industry and residential real estate market expert. She is the author of "Real Estate Investing Fundamentals & Strategies". Follow her on twitter @donnaconsults Watch her videos here. read more articles and contact her about real estate business consulting services on her website.
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