How To Buy Your First Home- Part 1
Buying a home can be simple and painless by preparing for the entire experience ahead of time. Rushing to buy does not allow the first time home buyer to make careful decisions, and it’s possible to miss out on a better opportunity. Gain an understanding of the steps it takes to buy a home and plan to spend several months committed to the process.
1. Decide if You’re Truly Ready
Everyone wants to own a home to have a place that they can call their own instead of throwing away money renting. However, the financial responsibility is quite demanding compared to being under the protection of a landlord. Repairs, all utilities, property taxes, and insurance become an unavoidable expense that has to be accounted for. It is foolish to enter into a new debt without first getting out from under any other accounts, such as credit cards and automobile loans.
2. Find the Right Home Loan
Loan pre-approval establishes the price range to get you started in the right direction. Every lender has their own terms so shop around with a few different options before deciding on the most agreeable home loan rates. Don’t overlook local credit unions and banks that may have additional incentives for dealing exclusively with their establishment.
3. Understand Loan Types and Financing Options
Mortgages come with either a fixed rate, adjustable rate, or interest only options that need to be thoughtfully considered.
- Fixed rate mortgage: This agreement guarantees a set interest rate so that it’s easier to figure out a predictable budget throughout the duration of the loan. Usually the higher the initial down payment is, the lower the monthly rate will be each month. One downside with this agreement is that refinancing often requires payment of the closing costs unless the lender agrees to waive the fee.
- Adjustable rate mortgage: A lower interest rate than the fixed option carries more risk because the payment amount can increase significantly. This is the best decision for a buyer that intends to pay more than the minimum to establish equity. There are a few different ways to arrange the reset points when rates change, but this will vary by what is offered by each financial institution.
- Interest-only loan: An option similar to the ARM involves only repaying the interest for the first years of the loan. The interest rates are usually high, but payment toward the principal loan are not factored in until later. There is more leverage toward buying a bigger home going with this option. However, it’s not ideal for building equity so it’s more risky if the housing market causes an increase in the home price.
4. Figuring Out How Much You Can Afford
Factor taxes, insurance, the mortgage, down payment, and personal income with the help of a financial expert to stay within the right price range. A smaller home may be the smartest way to go for a first time home buyer because it’s more reasonable and can always be upgraded in the future.
Come back next week to check out part 2 of our guide detailing the remainder of the first time home buying process.