ARE you preparing to buy your first house, these are some of the legworks to do in order to be in a good position to buy, according to experts at Ramseysolutions.com.
- Pay off all debt and build an emergency fund
Owning a home is much more expensive than renting, even if your monthly house payment will be less than your current rent. When you’re a homeowner, you’re responsible for everything.
Before you even think about buying your first home, get debt-free and save an emergency fund of three to six months of expenses. Then, your money won’t be tied up in monthly payments, and you’ll have cash to cover unexpected costs.
Once you’re debt-free, stay that way. Stick with the good money habits you learned while getting out of debt.
- Use the 25 per cent rule to see how much house you can afford
Before house hunting, determine how much house you can afford
Your monthly housing costs—including principal, interest, property taxes, home insurance, private mortgage insurance and homeowners’ association fees—should be 25 per cent or less of your monthly take-home pay.
- Save a down payment
The best down payment is an all cash offer. Nearly one in four buyers pay cash for their houses. But if that isn’t reasonable for your first house, then aim for a 20 per cent down payment. That way, your lender won’t make you pay for PMI. PMI is insurance that protects your lender (not you) if you fail to make payments—so try to avoid this nonsense.
- Save for closing costs
Closing costs are typically around 2–7 per cent of your home’s purchase price. You can even put retirement savings on hold for a short time to save for a home.
- Avoid the worst mortgages for first-time home buyers
A huge benefit to being a first-time home buyer is that you’ve never fallen for an awful mortgage—and you don’t have to!
Many first-time home-buyer loans only make you put a little money down, but they cost tens of thousands more in the long run.
- Know the best mortgage for first-time home buyers
The experts only recommended 15-year fixed-rate conventional mortgages.
- Pick a lender you’re comfortable with
Some lenders only care about profits, while others actually care about helping you become a homeowner. Talk to at least three lenders. Compare their interest rates, fees and customer service to find the best one for your finances and peace of mind.
- Get pre-approved for a loan before house hunting
It pays to get pre approval for a loan (not just prequalified). Preapproval is when your lender verifies your financial information and gives you a letter saying how much money you can borrow.
Preapproval shows sellers you’re serious, and you can use your letter to get ahead in a competitive market.
- Find a trustworthy real estate agent
One of the most important things you need to buy a house for the first time is actually a person. A good real estate agent will help you find the right home and navigate the buying process.
- Get clear on needs versus wants
Try to differentiate between what you need and what you want. Know what motivates you. Be content.
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