For some, first time home owning will be a big priority for 2020. The process can be slightly overwhelming at first but we are here to simplify it.
Check out these six homeowner tips to be prepared for buying your first house.
When it comes to buying your first house it is so crucial to know what you can afford and are qualified for before you start the homebuying process. Getting pre-qualified doesn’t take much time and will help narrow your search before finding your dream home only to realize it’s out of your price range.
The process begins by filling out an application for income, assets, employment history, and residency to the lender. Afterward they will determine the amount they are willing to loan you for your first home. It’s important to remember you don’t have to spend this much as bigger doesn’t always mean better for your first home.
Your down payment and credit score are the two most important factors when it comes to determining your monthly payment. The higher your credit and more you put down, the lower your monthly payment.
Owning a home has historically been a great asset as home values have risen on average 6.4% annually. Unlike other investments, you can’t easily pull money out of your house. It is very important to not overextend yourself.
A good rule of thumb is to never spend more than 30% of your paycheck on your mortgage.
Ideally, a 20% down payment is preferred as you will eliminate property mortgage insurance (PMI). Property mortgage insurance protects the lender from losing money if you end up foreclosing.
PMI fees vary depending on the original loan but usually range between 0.3 to 1.5% percent of the loan. Once you hit 20% of the original home value you can contact your lender to have this portion of your monthly payment removed.
Even the best home inspectors can’t determine if the air conditioning or water heater is going to quit as soon as you move in. When purchasing your first home don’t spend all your savings on the down payment. Plan ahead so you have money left over and are prepared for any unexpected house expense.
One of the biggest surprises for new homeowners are closing costs. Closing costs are separate from the down payment and cover things like:
Closing costs are typically 2-5% of the purchase price and occur when the title of the property is transferred from the seller to buyer. In some cases, you can have the seller cover a portion or all of the closing costs. As this can be a significant amount, be sure to have your realtor try to negotiate the seller to pay a portion of them.
The old saying when buying a house is, “location, location, location” and it couldn’t be truer.
Before you put an offer on a house make sure to scout out several neighborhoods you want to live in. Visit at different times of the day and week, talk with neighbors and find the closest schools. Figure out if it is close to your work, easy to access freeways, and close enough to stores or restaurants.
Remember, most mortgages are 20-30 year terms. While you might not live in your home that long you will be there for some time. Make sure you love the house and physical location as selling the home requires a lot of time, money and paperwork.
Hopefully this will help you avoid some of the common missteps of buying your first home. Enjoy the process, find something you love and be proud of owning your first home in 2020.
Bayntree Wealth Advisors, located in Phoenix and Scottsdale, Arizona, provides comprehensive financial planning and wealth management. The Bayntree team specializes in all aspects of financial health, including retirement planning, risk management, investment advice, tax strategies, estate planning and insurance.
Bayntree does not provide specific legal or tax advice. Please consult with your tax advisor or legal professional for guidance with your individual situation.