Purchasing your first home is one of life’s most exciting times, but it can also feel overwhelming – especially if you are ill prepared. A “learn as you go” mentality will simply not work when buying a home, since what looks like a small setback or surprise can easily end up costing you thousands down the line.
To keep your costs at a reasonable level, many first-time home buyers convince themselves that they will simply stay within a budget. However, there are many factors involved in purchasing a home, making it difficult to go ahead without in-depth planning. With that said, here are five tips you should implement to prepare yourself to staying within your buying budget.
Focus on Your Credit Rating
Before you even go on the market looking for a house and shopping for a mortgage, know your credit score. To get the best possible loan rates, you need a credit score of at least 740 and higher. Learning your credit rating early gives you an opportunity to improve its rating before looking at potential homes.
One way to improve credit rating is by paying down debt and paying any bills you have on time. This may even involve postponing your house hunt, but purchasing a home six months down the line is a reasonable enough sacrifice to get a better mortgage rate.
Educate Yourself on How to Compare Loans
Before choosing a loan product, you have to learn about its features and terms that are likely to have a big impact on the cost of buying a home. This includes ways of going without Private Mortgage Insurance (PMI), researching home loan or mortgage refinancing and looking for ways of reducing fees such as property taxes. Reading a detailed review on available loan products such as Prosper Personal loan review is a great way of becoming familiar with some of the most critical aspects of comparing loans and mortgages.
Eliminate Your Debt
If you are not in the housing market and you have debt, it is best that you postpone house hunting until most or all of your debt is settled. Debt makes it harder for you to pay the required down payment on a house, and may also affect your mortgage rate terms. When you are debt-free, you stand a better chance of getting better mortgage and loan rates.
Your Loan Amount is NOT Your Spending Amount
It is important you understand that just because a lender or banker has pre-approved you for a $500,000 loan, does not mean that you may buy a $500,000 home. There are several factors that you need to consider when dealing with your budget – including closing costs and monthly payments. Do not let an inflated pre-approved loan amount sway you into purchasing a home that is more expensive than you can afford.
To find out what you can afford, review your monthly expenses and income, and estimate how much you can afford to make as a monthly loan payment. Next, use a mortgage calculator to determine what amount to spend on your new home.
Maintain a House Emergency Fund
The biggest difference between owning and renting a home is that you, the homeowner, is now responsible for any upkeep and repairs. It is advisable to keep some amount of cash aside for house emergencies. Such emergencies include a broken furnace, a leaking roof or buying a new appliance.
As a first-time home buyer, there is more than browsing real estate listings and getting together a down payment to making that move from a renter to homeowner. One of the first things you should do is prepare a budget for this big financial event in your life. Make the experience an enjoyable journey by following the tips above.