Depending on where you live, buying a home can actually be less expensive than renting a home or apartment. However, there are many financial issues you need to consider before you decide to actually make that purchase. What are some good financial tips for those looking to buy their first home?
Think about Everything You Need for the Home
In your excitement to buy, you may only think about the monthly mortgage payment required. You may also consider how great that big screen is going to look in your living room, or that new furniture set you want to buy for the kitchen. While there is nothing wrong with buying new furniture or a new television, you should consider everything you will need to run a household.
This means that you will need to consider the cost of buying a lawn mower, dishwasher, new tools, and how much it may cost to maintain the home while you live there. Make sure you have room in your budget to afford the upfront costs as well as the many extras that go into making a house a home.
Make Sure You Have an Emergency Fund
After your cover the cost of everything you need for the home, you should then think about how you would pay your mortgage or other costs if you lost your job or an emergency came up. Prior to closing on the transaction, make sure you have at least three months’ worth of savings available to ensure you can get through any hard times. In fact, your lender may ask to see sufficient funds in your bank account before agreeing to make the loan. This is also where you might want to look at different types of home insurance. If something goes really wrong, it might be worth it to have some of the costs already covered.
How Will You Handle Your Down Payment and Closing Costs?
Closing costs and your down payment can easily exceed $10,000 or more, even for a starter home. Think about how much you can afford to put down and how much you are going to pay on your own. You can limit your down payment to 3.5 percent of the purchase price or less by opting for an FHA, USDA or VA loan if applicable. In addition to limiting your down payment, these government loans allow you to get the funds for the down payment and closing costs from a friend, relative, or an employer. The seller is also allowed to contribute toward your closing costs as well to make it easier to complete the transaction.
Don’t spend any Money Before the Closing is Official
Whether you are looking for homes for sale in Utah or New Hampshire, this is good advice for a couple of reasons. First, you could jeopardize your loan by making purchases as that drains your bank account or increases the amount of credit that you are using. Using credit could decrease your credit score and change the terms of your deal. Second, you never know how much your closing costs will be until the loan closes. While you will get a good faith estimate ahead of time, that is only an estimate, and even a small deviation could alter your financial plans.
Buying a home is large financial commitment both before and after the transaction occurs. By accounting for all of your costs and not spending money unnecessarily, you can transition into your first property without feeling house poor. Then, as your finances stabilize again, you can start to make discretionary purchases without making it difficult to pay your mortgage. Soon your new place will be the home you always dreamed of.