It is a tough process to buy a home for the first time and it is one of the biggest purchase decision of our life.
It is common to pay 20% as down payment. But, in recent days, the lenders permit as little as 3%. This, in turn, leads to a higher monthly payment and payment for mortgage insurance. The lesser the down payment, the heavier will be the monthly and net payment. Hence it is better to start saving early.
Before buying a home, we have to check our credits. Because it is one of the key factors for the approval of mortgage loans. We have to explore opportunities which will increase our credits. And we also should make sure if there is anything that could bring down the credits.
If the credits status worries us, it is better to pause new credit activities as it will affect our credit score. When we apply for a loan or a credit card, the lender will send a request for information to the credit bureau to verify our creditworthiness. This is called “hard inquiry”. Soft inquiries are when we apply a new bank account or when someone runs a background check on us. These inquiries don’t affect the credit score.
Before we start to look for a new home, we have to assess what is our price range and we have to determine how much we can afford to spend. For instance, let us take the salary we take home. Calculate how much is left after spending for taxes, savings for retirement and college, health insurance. Then add the monthly bills, not just bills but also groceries, utilities, etc. we have to be comfortable that we will be able to take care of all the household obligations while meeting other financial needs. It is better to keep six months of expenses in an emergency fund.
The government may also conduct programs for first time home buyers. In addition to central government programs, many state governments offer help for the first time home buyers with perks.
The cost incurred when the title of the property is transferred from seller to buyer is called the closing cost. The total amount of closing costs depends on where the property is being sold and the value of the property being transferred. Usually, a percentage of 2 to 5 of the purchase amount is paid by the homebuyers.
If you're moving into a new home, there will be all kinds of expenses that we hadn't thought of. Once we have saved closing cost and down payment, we should also set aside a buffer to pay for the things that will go inside the house like appliances, furnishings, rugs, updated fixtures, new paint and any other touches that we’ll want to have when we move in.