Are You Ready?
Are you ready to be a home owner? Buying a home is a big purchase. A mortgage is the biggest expense but certainly not the only one. There are small upkeep’s like maintaining the grass to larger ones like replacing a boiler as one of my friends had to shortly after the purchase of his home. It is a big responsibility and it’s important to have the mindset to consider when things don’t go your way.
How about your credit? Before you apply for a loan, get your free credit report. The credit report is different than your credit score. It will show you the credit cards you have open/closed, any mortgages or loans, and if you’ve made payments on time or not. Examine it to make sure everything on there is correct and up to date. Any mistakes that aren’t fixed can create havoc when applying for a loan. If you do find an issue contact the credit bureau that has the mistake and have them correct it. You may also want to check your credit score which may entail a fee. The higher the score the better terms you may get from a bank.
It’s obvious that we all would love to live comfortably but we all have our own definition of comfort. If you watch Bravo’s Real Housewives of…(pick your poison) or MTV’s Cribs (remember that show!) their comfort level is more extreme than most of us would like to live. Be realistic on how much you can afford. As a general rule if you haven’t saved 20% of the purchase price then it is more than you can afford. Even if banks will lend without 20% down you will be hit with Private Mortgage Insurance (PMI). Banks will require you to get mortgage insurance if you do not have 20% of the asking price. PMI rates are much higher than what is advertised by mortgage companies.
Set a Ceiling
Yes, this requires a budget. Know what you can truly afford. The mortgage company will tell you what you can “afford” but take some time to think about how this purchase will affect other parts of your life. Do you want a big home that forces you to stay home and eat Ramen Noodles? Think about how your mortgage and other payments (like insurance and taxes) will affect your lifestyle. A mortgage calculator will only tell you half of the story. There are also closing costs which can run between 2-5% of the purchase price. The more you pay for a mortgage the less room you have left over for leisure activities such as dinning or traveling. Creating a budget is a good exercise to see what things you can or cannot live without. From there you know what your ceiling is.
Don’t Get Discouraged
Finding your dream home is the ultimate goal but don’t get discouraged if it slips by. Stick to your plan. Ask family and friends about their experiences. Everyone has a story about the purchase of their first home and they have a whole slew of do’s and don’ts. They might also refer you to a reputable Realtor. The good Realtors will always be upfront and honest with you and respect your budget. Be weary of the ones that will try to up sell you on homes that may be out of your budget.
There is a lot to think about when purchasing your first home. Make sure you’re ready and realistic because it is such a big purchases. Finally, remember it takes time and perseverance to find the right home. Don’t be discouraged and stick to your plan because you will find something that you can call home.