Buying a home is a huge milestone. But it’s also one big commitment. You are basically investing in your future and your family’s future, making it absolutely necessary that you avoid making mistakes during the buying process.
However, reports show that up to 72% of homeowners have homebuying regrets. Among the top three reasons for their regrets are as follows:
- Spending too much money
- Rushing to make a decision
- Buying a house without seeing the property in person
With proper planning, you can finally invest in your first home and avoid the usual regrets associated with home buying. To help you on your journey, here are five best practices for first-time home buyers:
Know Your Finances
One of the best decisions you can make is to review your finances before applying for a home loan. There is no point in applying for a mortgage if you are not even sure you can afford the monthly payments. Even if lenders will assess how much of a loan you can afford, it would still benefit you if you could find out the amount of mortgage you can realistically pay each month.
Remember that lenders will only approve a loan based on your capacity to make repayments. But that doesn’t necessarily mean you should spend all of what they’re willing to lend you. Just because you can afford the monthly mortgage doesn’t mean you should overstretch your finances.
Experts recommend keeping your housing costs at 28% or less of your gross monthly income. However, you also need to consider how much cash you spend each month on other debts and living expenses. If your current monthly cash flow is tight, you might want to reconsider buying a home and focus on improving your finances first or choose another mortgage type with a lower monthly fee. Take your time when weighing your finances, or else you might struggle to make ends meet each month.
Choose Your Mortgage Type Wisely
The kind of mortgage you should get will depend on your unique situation. Some buyers have a lower credit score and can only afford a small downpayment. Some can afford a higher mortgage rate or can only afford a longer loan term. Considering your situation will make it easier to choose the right mortgage type for you.
Let’s say you have a credit score higher than 620, can put in at least a 20% down payment, and can meet a higher debt-to-income ratio. In such cases, you can benefit from a conventional mortgage. But, if, on the other hand, you have a credit score that’s below 620, can only afford a 3% down payment, and have a limited employment history. An FHA loan would be ideal for you.
You also need to decide on the term of your mortgage. A shorter loan term usually comes with higher monthly repayments but less interest paid in the long run. On the other hand, a longer loan term has lower monthly repayments, but you will end up paying more in interest.
It all boils down to what you’re comfortable with and what you can afford each month. Just make sure you choose a mortgage type and term that won’t put too much strain on your finances.
A reliable lender can help you make the best decision as to what mortgage will best suit your needs. They can also recommend other types of mortgages you can qualify for based on your current financial situation. Find one that offers different types of mortgages, has low-interest rates, and has a proven track record of quick closings and exceptional service.
Choose a Home Lower Than Your Maximum Loan Amount
Let’s say your lender approved you for a home loan worth $450,000. But instead of choosing a home priced around that range, you can go for a cheaper property. For instance, you can look at houses priced at $400,000 and below.
The reason behind this is that you need to have room for negotiation regarding the house’s final selling price. Also, if you encounter unanticipated expenses during the purchase, you still have enough cash to cover them. It also makes sense not to get the maximum loan amount to lower your monthly repayments and the interest you pay over the life of your loan.
Just because you can afford the maximum loan doesn’t mean you should get it. Take into account your current monthly expenses and try to leave some room for unexpected costs, such as higher utility bills or home repairs.
When looking to buy a home, keep in mind that you don’t have to stretch your finances too thin. You can find a property lower than your maximum loan amount and still leave room for unexpected costs. Additionally, you should choose the right mortgage type and term based on your unique situation. A reliable lender can help you make the best decision and offer different types of mortgages with low-interest rates.