Buying a new home is one of the biggest financial decisions you can make in your lifetime. Rushing into your first home purchase is a very bad idea. While it’s tempting to grab up one of the incredible deals you’ll find in this buyers’ market, taking the time to doing things right ensures you’ll be happy with your home. If you don’t know these five aspects of buying your home, you’re not ready to buy.
Know Why Before You Buy
Ask yourself, “Am I buying a house as an investment or as a home?” First time homebuyers are often tempted to buy homes that need work because they are so cheap. However, a house that needs extensive work should be looked at as an investment property, not a home.
Construction work always costs more than you think. Problems crop up during remodeling that you cannot foresee. That’s why you don’t live in a project house you buy as an investment. Unless you don’t mind living in an unfinished home for the next 5 or 10 years, avoid anything that needs more work than spackle and paint.
Know Your Credit Score and History
Your credit score and credit history will determine the mortgage rates you get. Check your credit score and get a copy of your credit reports from all reporting agencies to find any problems that could cause a lender to reject your application. Negative inquiries hurt your credit score, so checking before you apply is important.
If you notice problems that may affect your new home loan or the rate you will receive, contact the creditor and have the problem fixed. It could be several weeks before the corrections are put in place, but the time you spend fixing your credit problems will be well worth the money saved over the course of your home loan.
Know Your Budget
Setting a budget for your new home means making sure you have enough money to live on outside of your mortgage payment. Generally, financial experts advise making your mortgage payment 25 to 33 percent of your monthly income. Don’t forget to figure in the cost of taxes and insurance when making your calculations.
Knowing how much is available in the budget lets you set a price range for homes you can afford. By doing this first, you avoid the painful process of falling in love with a house you can’t afford. It could tell you that now is not the time to buy a home; that you need to beef up your income first.
Know Your Down Payment
Next, it’s time to figure out how much you can spend for a down payment. Because you have already been saving for a down payment for a number of years, you should have enough money in the bank to take a sizable chunk out of the price of your new home.
Many lenders offer little to no down payment options. If possible, borrowers should steer clear of such financial schemes. Putting little to no equity into your new home may turn out to be a devastating move down the road. If the home value drops and you find yourself on hard financial times, you won’t be able to sell the house to pay off the mortgage and downsize to an apartment. New homebuyers should try to put 20 percent down on a new home. This will leave you enough equity in the home for future financial emergencies.
Know Your Closing Costs
Transferring ownership of a property involves legal paperwork and fees. You’ll likely pay mortgage fees and other expenses too. Plan for these costs to add up to 3 – 4 percent of the home’s purchase price.
Once you know these five things, you can get preapproved for a mortgage and start hunting for a home within your price range. Take the time to look around and don’t rush into the first house you can afford.
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Jessica Bosari blogs about pre purchase building inspections Perth for BSP Consultants.