Are you thinking about buying a home? Some of the most important advice about the steps to buying a house for the first time concern money matters. How should you arrange your finances so you’re ready for this investment?
Smart Financial Steps to Buying a House for the First Time
It’s possible to get a mortgage for a down payment as little as a 3% of the price of the whole. While that’s possible, it’s really not financially advisable unless you really have no other choice. If you put down anything less than 20%, lenders and sellers look at you as high risk. In order to get your loan, you’ll have to buy private mortgage insurance (PMI) and make extra monthly payments in addition to your mortgage.
PMI protects the lender, not you, and the more you have to borrow, the higher your PMI payments will be. By saving now for a bigger down payment, you can avoid having to buy mortgage insurance at all. Another important benefit to putting down as large a down payment as possible is that it reduces the amount of interest you end up paying over the lifetime of your loan, and you may even get a better interest rate.
2. Think Ahead
You might have a lot of plans for your future in addition to buying a house. Are you planning on having children? Considering going to grad school? If these are expenses you have in mind for the future, but not ones you deal with right now, you might make some miscalculations in deciding how big a loan you can handle.
Your loan officer can only help you understand your current financial situation as it is. He or she can’t anticipate what you might do in the future, so it’s up to you to decide whether you’ll need some extra cushion to pay for things like diapers and grad school textbooks five years down the line.
The better your credit score, the more options you have for getting a great mortgage loan. If you have good credit, don’t be afraid to shop around. The more options you look at, the better your chances of finding a mortgage with a rate and term length that work for you.
If you don’t have great credit, your options may be more limited. If waiting a year or two to buy your home would give you enough time to repair your credit, it might be worth it for the savings you’ll experience on your home loan. Also, be sure to check your credit report and make sure there are no errors that are lowering your score when they shouldn’t be.
4. Get Life Insurance
If you don’t already have life insurance, or if your life insurance is only designed to cover your current living expenses, be sure to get more coverage once you take on a mortgage. If something should happen to you, the last thing your surviving partner needs is to get kicked out of their home because they can’t afford a mortgage payment on their own.
5. Ignore the Pre-Approval Maximum
When you go in to get pre-approved for a loan, your lender will tell you the maximum amount of money they’re willing to lend you. Too many people consider that number their actual budget; don’t be one of these people. You can spend that much if it’s necessary; but spending the max means putting yourself in the maximum amount of debt. If a difficult or expensive life event comes up later, you might get behind.
Find the Right First Home
The steps to buying a house for the first time can seem overwhelming, but with the right help you can get a home you’ll really love. Call Teresa Mack today to get the expert advice you need to navigate your first home-buying experience.