Purchasing a home is likely the greatest purchase you’ll ever make, but it’s not always an easy one. Buyers need to be informed and have their finances in order before entering the market.
Here are what experts say first-time buyers need to understand:
- What you can actually afford.
Before buyers begin their house hunt, it’s essential they know how much amount they can afford to spend. According to Jim Parrish, a personal injury attorney in Manassas, “It’s easy to convince yourself that you have more room in your budget than you actually do. If you find the house of your dreams and it’s out of your price range, you may be tempted to stretch. Doing that, however, could be a huge mistake, and put you in more debt in the future than you can manage. So make sure you know exactly how much you can spend, and even try to keep under that to ensure that you’re making a wise decision.”
Buyers enlist out all of their monthly expenses, without leaving out items like discretionary groceries, and transportation spending, and others like nights out and gym memberships.
A general rule of thumb is that: housing costs shouldn’t take up over 30% of your before-tax income.
However, the percentage can vary, especially if you’ve other debts, like car payments or student loans.
Overspending on monthly housing payments can leave the homeowner’s house poor, and unable to meet other expenses—like saving for retirement.
It’s common in competitive markets, for buyers to get pre-approved for financing so as to get more customers. But just because a bank approved you for a given amount, it doesn’t imply that’s what you should spend. Just stick to a price limit you are comfortable with.
- You need a buffer.
Although it may be tempting to spend everything you have, at your offer to stay competitive, it’s advised having at least some balance after you budget for a home.
It’s recommendable to have at least 3-6 months in savings by the day you become homeowners. One of the reason is that you’ll be needing emergency savings now more than ever.
Therefore, if a home purchase renders you with no liquidity, consider lowering your price point or waiting to increase your savings.
- The actual cost of owning a home.
The down payment usually tends to be the biggest financial challenge to owning a home. But there’re many other costs, which pop up along the way: origination, appraisal, notary fees and, a credit report can all add up.
Note that the costs don’t seize just when the keys are handed over. There is a need for new furniture and costs like utility payments and lawn care, which former renters might not be familiarized to paying.
- Renovations aren’t as seen on TV.
Buying a fixer-up might enable you to afford a home in a more desirable area or snag a bigger one, but there are huge consequences.
Just Know that it’s always more expensive than what you’re imagining or what you see on television. If a home needs renovations, always factor it into the total cost of buying.
A private loan is usually an option to finance this project but can be hard to secure, especially after taking out a mortgage.
If your home requires far more than you purchased it for, then you could have the option of tapping your equity to assist in paying for renovations.
Additionally, there’re some mortgage options, which include renovation expenses. For example, 203k FHA loan enables homebuyers to finance the purchase and rehabilitation on just a single mortgage.
You can as well borrow from a friend or family member. Just, approach those closest to you, but be cautious of your relationship status if you default to repay back the loan!