Have you been busy saving up for months or years in order to purchase your first home, and are now ready to take the plunge? If so, you may be feeling a little overwhelmed by the whole process.
After all, apart from trying to choose the right property and getting it at the right price, which is difficult enough in itself, you also need to find the best loan for your needs, and ensure that you can afford it not just now, but into the future.
If you’re a first-time home buyer looking for some handy tips that will help you ensure you complete that all-important transaction satisfactorily, read on.
Know How Much You Can Afford
One of the first things you should do before even thinking about signing on a dotted line is really determine how much you can afford to spend. No matter what type of purchase you’re looking to make, buying a property is going to be one of the most expensive things you ever spend your money on, and therefore needs to be considered carefully. You need to be sure that you not only have enough money for the monthly payments, but also that you have your down payment in place. While this varies, it’s generally best to have around 20 percent available as a deposit.
To determine what you can afford, spend time drawing up a budget that factors in all of the responsibilities you have when it comes to bills, including recurring items, annual charges, and one-off amounts you need to factor in. Don’t forget too that when buying a property you have closing costs, maintenance and insurance fees, and homeowners’ association costs to consider, not to mention potential tax implications. As well, keep in mind that renovation or repair costs could be a factor, depending on the property you choose.
To help you get an initial idea of affordability, it pays to search online for free mortgage calculators. You can input details such as the price you could pay up to for a home, the deposit amount you have already saved, and the term of the potential loan, to calculate the maximum monthly payment you can afford.
In addition, it helps to spend a few months living on the amount you would have left over after paying a mortgage, to ensure that you can actually make it work and would have enough in your bank account to cater for emergencies if they pop up.
Stick to a Purchase Plan and Budget
Next, give yourself a strict budget and purchase plan to go by when you start inspecting properties. It is important not to get too emotionally involved in a purchase, as you could end up spending more than is sensible, or buying a property that won’t achieve the goals you have set for yourself.
For example, you might want to find a property that will bring in investment income each year for you; or one with the potential for high capital growth over the years; or a home that’s the right fit personally, with particular features or with a great location that is close to schools, your work, or other facilities.
Be aware too that sometimes banks or other lenders will pre-approve a loan for you to a value that is higher than you really want to spend. Don’t let yourself get tempted to spend more on a property than you want to, simply because you’d have the loan funds available.
Find the Right Loan
Apart from selecting the best property for your needs, it is also crucial that you source the right loan. You should research the various lenders on the market, as well as the different types of first-time home-buyer loans they offer, to see what the best fit for your individual needs will be. There are many lenders to choose from these days, all with varying criteria, as well as terms and conditions. As such, you should compare options carefully.
Before submitting a loan application, it is a good idea to find out what your credit score is. This is one of the top factors that lenders look at, and will typically dramatically affect the type of loan you can get, and the costs of that loan (in both interest rates and fees). You will find free credit reporting tools online that you can utilize to get this information. If you discover that your rating isn’t as high as you’d like, spend some time paying off loans, credit cards, and unpaid accounts before you apply for a loan.
Another way to help you get the best loan, more quickly, is to have all of your paperwork organized in advance. Lenders will want to see a wide variety of documentation and records in order to get a feel for your ability to pay a loan, with interest, on time. As a result, make sure you have things such as:
- Your tax returns up to date
- Your recent payslips or business financials, if you work for yourself
- Bank account information and list of assets and liabilities available
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