Buying your first home involves more than just purchasing a place to live; it’s a significant step toward long-term financial stability. While being a first-time homebuyer can be exciting, the process can also be overwhelming for many people. Here’s everything you need to know about the importance of buying a home, how to purchase a home that maximizes your chances of financial success, and other first-time home buying do’s and don’ts.
Getting Ready For Buying A Home
Buying a home for the first time can be overwhelming. Here are our top tips to help smooth the process — from saving for your first home to getting ready for your move-in date.
- Start saving now. Even the lowest down-payment programs require you to pay at least 3% of the home value, not including moving or closing costs. This amount may seem small, but saving for a down payment can be a long process, so it’s best to start early.
- Get pre-approved. A pre-approval letter gives you a better idea of how much you can afford by pre-approving you for a specific loan amount. Getting this pre-approval can save you time and ensure you have realistic expectations as you begin house hunting.
- Ensure your credit score is high enough. You’ll need a credit score above a certain threshold to qualify for a particular loan amount. If your score is too low, consider boosting it to position you for loan approval and enable reduced interest rates.
- Inspect the neighborhood with an eye to the future. Review neighborhoods and nearby amenities and ensure the local area will meet your current and future needs.
Know Your Mortgage Types
In addition to preparing for purchasing a home, first-time buyers also need to understand the complexities behind taking out and paying a mortgage. Finding the right home loan is important, and there are many options, including loans that:
- Come in various terms, including 15-year and 30-year loans.
- Have variable or fixed interest rates, enabling you to judge the circumstances of the moment before taking out a loan.
- Are based on your eligibility with a certain membership group, like being a veteran. Sometimes, you may also qualify for a reduced interest-rate loan based on where you live or your profession.
To select a loan that fits your needs, you’ll need to understand the difference between the types of loans available and identify the one that will get you the best results for your economic situation.
Key Budgeting Tips For First-Time Homebuyers
Buying a home requires you to consider several key budgeting aspects. Understanding these principles will ensure you can continue to afford your home’s mortgage, taxes, and upkeep. Here’s what you should consider when budgeting for a new home:
- It’s not just the mortgage. When calculating what you can afford, remember that your mortgage payment isn’t the only payment you will make. You will also have property taxes, homeowners insurance, and more. Furthermore, there will be moving costs and inevitable repair costs. As such, you need to budget conservatively.
- Don’t just take out the maximum loan. Just because you qualify for a loan doesn’t mean you should take out the entire amount you qualify for. Doing so may saddle you with more debt than you can manage, leaving you in a position where you may need to catch up on your payments.
- Build that buffer. Conservative budgeting also means that you start saving even more. Yes, you need to save for a down payment. However, you also need to create a budget reserve for major or minor repairs in case of catastrophic damage to your home due to wear and tear or an accident.
- Remember the tax advantages and other cost reduction techniques. It is entirely understandable to be worried about the costs of homeownership. However, you should also consider the tax advantages of owning a home. Mortgage interest, insurance premiums, and property tax payments can be written off, reducing your overall tax burden. Furthermore, some investments — like an alarm system — can reduce the price of your homeowner’s insurance. Consult with a tax professional to understand how homeownership may impact your tax situation positively.
Get Professional Support When Buying Your First Home
Buying a home for the first time is a significant responsibility, and the economic considerations that must be made cannot be understated. By following the tips above, you will be well on your way to purchasing your dream home and positioning yourself for future financial success.
If you are looking for a home to buy, remember it’s about more than just finding an excellent neighborhood, good schools, and kitchen layout. Your home is essential for generating wealth and preparing for your long-term financial future. There are certain things to know when you buy your first home, and at First Western Trust, we’re here to help. We have knowledgeable staff who can help you find the right mortgage lender, structure your loan appropriately, and ensure you are ready to make this major purchase.
