5 Essential Tips For the First-Time Home Buyer

Homeownership is one of the most significant objectives for many families.

However, owing on a mortgage adds financial pressure.

Mortgage payments are the largest expense for most homeowners.

A significant proportion of a family's disposable income may be devoted to paying off the mortgage.

It is critical to plan how you will purchase the property before making the biggest investment most people ever make.

If you purchase more than you can afford or pay too much, it will not be a significant investment.

What is a First-Time Home Buyer?

A First Time home buyer is a person who has never owned a home before and is not already in possession of a mortgage.

One of the most important things to know when you begin looking for your first home is that you are not just trying to find a place to live, but also a house that fits your needs, lifestyle, and budget.

When shopping for a new home it’s helpful to keep in mind what you are looking for.

Is it the location? Is it the size? Is it the price? Or is it all of these things at once?

When searching for your first home it's important to be realistic about your expectations and what you can afford.

If you have a specific budget, price range, or interest in certain features make sure to set yourself up for success by taking into account any costs associated with buying a home such as closing costs, inspection fees, and utilities.

First-time buyers can have a variety of reasons for wanting to buy their first home including wanting to get out of student loan debt, start an emergency fund, or even wanting to build equity.

What is Home Ownership?

Choosing to become a homeowner is one of the most significant milestones in the life of most families.

It represents success, signifies adulthood, and proves that you can provide a stable life for your family.

Homeownership is one of the few methods by which the average person can accumulate wealth for retirement.

Unfortunately, so many people do not read and wind up underwater.

There are many things that can go wrong in the process.

The most common issue is that the buyer does not know what they are doing.

There are a variety of things that can happen if you are not careful.

You can lose your home because of a poor investment decision.

You can lose your home due to a serious illness.

You can lose your home due to a job loss or other change.

5 Financial Planning Tips for the First-Time Home Buyer

Check Your Credit

Check your credit report yourself using Credit Karma or mailing the three credit reporting agencies for a copy instead of being shocked by it when shopping for a mortgage.

Don’t close your eyes to the fact that you may have some problems with your credit report.

Work to fix them by contacting the credit reporting agencies directly.

You may also consider signing up for a credit monitoring service to get alerts if anything changes with your report.

This can’t be overstated: a healthy dose of paranoia regarding your credit report is essential.

Keep a Good Work History

Your work history is essential for getting approved for a home loan.

Even if you have a short work history, it is essential to provide documentation when applying for a home loan.

The following are examples of work history that can be submitted to a lender or used to substantiate your application:

Reduced-hour or part-time work

Jobless or self-employed

Unemployment

Self-employment

Stay-at-home parent

Military service

Job training or education

Seasonal work

It's difficult for a freelancer or gig workers to purchase a home because they want to see pay stubs.

For this reason, keeping great records and having a large down payment if you work for yourself is essential.

Save for a Down Payment

Purchasing a house in the United States nowadays is generally possible without paying large amounts of money upfront.

This scenario is different in most countries, indicating that the issue in the United States is buyers' inability to finance home renovations and upkeep.

A 20 percent down payment is a good indication of how much you can afford.

A large amount of money you put down will dictate how much you have left over to renovate your home, how much you can afford to spend on a house, and how quickly you will be able to move in.

Remember that it is tough to sell a house that needs a lot of work.

You may want to consider renting for a per before you decide to purchase a house.

This will allow you to see if only want to make this major financial decision.

Figure How Much You Can Pay Monthly

You should not follow the advice of banks by paying no more than 28% of your gross or pretax income as your mortgage.

It is a lot and probably not what you should go by.

Instead, look at your budget based on your zero-based budget or your 50/30/20 plan to truly understand what you can afford, using real numbers.

Understanding your financial situation is vital to making the right decision.

You need to know what your bottom line is, what you can afford and what will leave you with enough to cover your expenses and save for a secure retirement.

You can’t just go by what a lender tells you.

Instead, be smart and use the right tools to help you make the right decision.

Signing up for online calculators like this one from Bankrate or using a spreadsheet to track your budget only help you with this process.

Remember, the biggest factor in your ability to buy a home is the rate on the mortgage.

Where can you find that rate?

The best way to know is to talk to your lender.

Learn the Financial Lingo

Understanding the terms principal, interest, real estate taxes, property insurance, and home inspections is essential if you want to comprehend home ownership.

It helps to understand those terms, and learning their definitions is part of that process.

When you understand those terms, you can start to think about owning a property as an investment.

This can help you to think about your property in a more strategic way.

It can help you to take that ‘property ownership’ feeling and turn it into a realistic goal.

Can You Buy a House With No Money down?

Buying a house is an exciting but intimidating process for many first-time homebuyers.

There are many factors to consider, from the down payment required to the estimated monthly mortgage payments to the closing costs involved.

For first-time buyers, the biggest barrier to buying may be the lack of money down.

While it may seem counterintuitive to spend more on a down payment than you will eventually pay in interest, it's important to remember that a down payment is your initial investment in a home and should not be taken lightly.

One option for low-income buyers is a home loan with an interest-only mortgage.

This type of loan allows borrowers to pay only the interest portion of their monthly payment, while still putting down a large down payment.

Unfortunately, interest-only loans often come with high fees and high annual percentage rates (APRs), which can quickly add up over time if you're unable to make your regular payments on time.

Another option is a home equity loan or line of credit, which can be used as a way to bridge the gap between when you save enough money for a down payment and when you're able to close on your first home.

Government-backed loans are one of the ways to get a mortgage without a down payment.

Since the lender does not have to take on all the risk if there is a foreclosure that causes a default, you are given more beneficial loan terms.

There are several types of mortgages with no down payment that are backed by the government.

Conclusion

Buying a house is often a major financial decision that may require you to take on debt.

Before the leap, it's important to dive deep into the world of finances.

The best way to get familiar with the financial side of home ownership is by reading some books and paying attention to what experts have to say.

There are thousands of ways to buy a home, and the most important thing to remember is that there is a right way for everyone.

First-time homebuyers, in particular, need to make sure that their financial situation is stable enough to handle the additional debt that comes with purchasing a house.

One of the best ways to avoid putting yourself or your family at risk of financial ruin is by buying a home with local realtors who can help you evaluate the market and write a competitive offer.

A big part of becoming a successful first-time homebuyer is being able to be comfortable with your financial situation.

If you can't manage that, then you need to find a lender that can.

Read our range of personal financial planning articles to get your finances back on track.