Five Tips for First Time Home Buyers - Slimmer Payments

Five Tips for First Time Home Buyers

Overall, the COVID-19 crisis has had a negative impact on the economy. However, one area that the pandemic has seemingly not affected is home sales. In fact, as the pandemic continues, home sales are actually increasing. Realtors say that historically low interest rates and a desire for more space, as COVID-19 leads people to spend more time at home, are boosting demand for homeownership and attracting first time home buyers.

In fact, despite a peak in the pandemic, according to the National Association of Realtors, home sales jumped a record 20.7% over the summer. Over a third of those were first time home buyers.

If you are among those considering buying a home for the first time, here are some tips from professional realtors to make sure you have your personal finances ready.

Figure out your monthly housing costs

You can determine your monthly housing cost by adding the cost of your mortgage payment, taxes, and homeowner’s insurance. You’ll want to look at the total monthly housing cost before purchasing a home. You want to make sure it fits into your overall budget.

Determine your down payment

The typical down payment on a home is 20%. If you can afford 20% down, it will work in your favor. With a down payment of 20% or more, you can avoid Private Mortgage Insurance (PMI) and the higher interest rates that come with low-down-payment loans. However, if you cannot manage such a  large down payment, there are many low-down-payment options available, especially as a first-time buyer. But be aware that a lower down payment usually means you’ll pay a higher interest rate.

Get preapproved for a home loan

With preapproval in hand from a reputable mortgage company, your offer has a better chance of being accepted. Plus, you may be able to shorten the closing period since you have already completed the loan approval process. Keep in mind that getting “prequalified” for a loan is not the same as obtaining preapproval. Prequalification is merely an estimate of how much you may be eligible to borrow based on self-reported income information. It is not a guarantee you will receive a loan. You are still required to undergo an approval process.

Approach fixer-uppers with caution

Unless you are confident the house you’re buying has been deeply discounted based on the current housing prices in the area, you may place yourself at greater financial risk, and overextend yourself, if your new home requires a lot of work. Even if you are capable of doing many of the repairs yourself, you may bite off more than you can chew if you purchase a house that requires extensive repairs or remodeling.

Do your research so you’re ready to act

Buying a home can be a very emotional decision and it’s important to go into the process well-prepared. Take some time to lay out your priorities and research the market. What’s most important to you – resale value, location, school district, number of bedrooms? Be practical about what you can truly afford and take the time to obtain preapproval from your bank or mortgage company. When you start seriously looking, you may have to act fast if you find the perfect house for you. If you’re prepared and thoughtful at the beginning of the process, you’ll be in a better position to make the right move.

What do you think of these first-time home buyer tips? Have you recently bought your first home? Can you share your experiences, good or bad?

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