Buying your first house is a major investment that will most likely require you to take out a loan. By spending your pennies wisely, you’ll set yourself up for longstanding happiness once you’ve received the keys to your new home. In order to stay on the right track, here are five financial tips to keep in mind.
1. Get your finances in order before you start looking
When buying your first house, it can be easy to get ahead of yourself. However, it’s important to know where you stand financially before you start shopping. First, check your credit score. Before applying for loans, you’ll need to ensure your credit report is up to date and that there are no red flags that could hinder the loan-approval process. Then you’ll want to look into being preapproved for a loan. Without a preapproval for a loan, it will be hard to pinpoint the exact price range you can afford.
2. Don’t overshoot your budget
A major mistake many people make when buying their first house is overshooting their budget. Think about how much house and how big of a mortgage you can actually afford. It’s easy to overlook ancillary costs such as taxes, homeowners’ association fees and insurance. NerdWallet offers a helpful calculator that analyzes what lenders will likely approve you for, and it provides realistic suggestions for your circumstances. Keep in mind that the biggest mortgage isn’t always the best fit. You can, and should, shop around to explore your options.
3. Take advantage of first-time homebuyer perks
Most states offer incentives for first-time homebuyers. If you’re an eligible borrower, your state financing program may offer below-market-rate mortgages, grants, down payment assistance and closing cost assistance. In some states, if you qualify with income and credit standards, you may need to pass a home buyer education course in order to receive these money-saving perks.
4. Put 20 percent down
Twenty percent is the magic number when it comes to putting a down payment on a home. Do whatever is in your power to reach that figure. According to Forbes, a down payment of 20 percent gives you a better chance of getting approved for a mortgage, makes your monthly payments smaller, lowers your interest rate and allows you to avoid having to pay for private mortgage insurance.
5. Stay realistic during a bidding war
Just when you think you have your finances in order and you’re ready to make an offer, there’s a good chance that you may discover that a few other buyers are interested in the same house. If you find yourself in a multiple-offer scenario, it’s easy to get caught up in the competition of the buying process. However, it’s important to stay realistic when considering your finances. When caught in a bidding war, keep your maximum price at the top of your mind. Ask yourself if the home is worth overshooting your budget, and be sure to think all decisions through carefully.
Purchasing a home is a big deal — and you’ll likely borrow a hefty chunk of change. Before you act, understand your financial position, have your finances in order and make a realistic purchase. If you start to feel lost in the process, refer to these five tips. Remember, with the right planning and attitude, financing a home doesn’t need to be overwhelming. Visit Owners.com for more advice on how to get the best deal.
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