As a 20 something, you probably have a growing number of things that you are slowly beginning to check of your lifetime “to-do” list one by one. This is an exciting time, but it can be slightly nerve-racking financially as well. You are starting a new career, likely paying off student loan debt and now you are thinking of buying your first home. There is a lot to be excited about and as long as you do your research and find a house that fits your budget, this is one more item you can confidently check off your list, but before that can happen you need to take the time to be sure you are well informed of your choices. If you follow these tips, you may find that the whole process is a little less daunting.
First off, it’s time to face the cold hard facts. The days of 100% financing on a home that is guaranteed to double in value within five years are over, and by the looks of it, they are not coming back anytime soon. Financing is harder to come by and the market is over supplied with homes. Homes once upon a time sold easily in 90 days or less. But many who are trying to sell homes on the market today are finding that this is not the case anymore. The current state of the housing market has both benefits and drawbacks for first time home buyers like you. As long as you are aware of the current market situation and what it means before purchasing a new home this can actually work to your favor.
Tip #1: What you can get financing on is not the same as what you can afford.
The rule of thumb is that your total housing costs should not exceed 28% of your total monthly take home pay. This rule was routinely broken several years ago, and because of this many people have lost their homes. The economy is not great right now, and the prospect of getting laid off is very real. It is important that as a first time home buyer, you do not overextend your means. Do not buy a home on the anticipation that a raise is soon to come. You never know what may happen, but you don’t want to bet your house on it. To find out exactly what you can afford, you may want to use one of the many online mortgage calculators to see what your monthly payment would need to be in order to not drain all your income. Remember there will be certain unexpected costs that will come up, like repairs, additions, remodeling and of course home owner’s insurance, that you will want to have money put aside for. It’s easy to fall in love with a house and think “I’ll figure the payments out somehow,” so it is a good idea to figure out what you can actually afford before you even start looking around.
Tip #2: Get pre-approved before shopping for your first home.
This will save both you and your agent time. By knowing what a bank is willing to loan you can limit your search to only properties you can receive financing for. This will also alert you to any problems that might come up. It is best to know about any credit problems early on in the process. This will allow you to address those problems while simultaneously looking for a new home. However, you really want to look around and not go with the very first loan you see. Of course, it may be easier to go with whatever your normal bank is, but be sure that you are getting the best loan for your money. Do not overlook the fine print. Be sure you know all the fees and penalties for late payments.
Tip #3 Make sure it’s a neighborhood you love.
It seems like common sense, but buy a home you love in an area you love! It is very likely that you will be in this home for at least five years. The days of buying and flipping are through. While a home is still an investment, it is not a short term investment. You should plan on living in your new home and not looking to trade up as soon as possible. Along these same lines, be prepared to check out many homes in the area you love. With the Internet at everyone’s fingertips, buying a home is much different than it once was in our parent’s generation. In the past you had to rely on an agent to show you properties or drive around looking for “for sale” signs. Now you can enter a simple search for your area and see hundreds of homes. Be selective, make a list of your favorites and then make calls to view the homes from there. Generally, if you are motivated it’s realistic to find your new home within as little as 2 weeks. Remember, yes you want to look around and be a smart shopper, but when you find that perfect home, be happy with it and stop looking. With so many listings in your reach, it’s easy to get caught up looking even after you’ve gotten settled. Look at it this way, if you met your soul mate on a dating sight, should you really still be looking to see what else is out there? Okay, it might be a bit of a stretch, but you get the general idea.
Tip #4: Once you’ve got it, insure it!
When you do take on a mortgage, it’s necessary for you to get home owners insurance. What you should do however is look for a policy that also covers contents insurance. This essentially covers all the “movable parts” of your home (think furniture, televisions, computers etc.). After taking on the added cost of a mortgage, the last thing you want to worry about is how to replace your belongings in case an emergency happens. You may at first glance write it off as unnecessary or costly, but in the long run, contents insurance can save you a lot of money.
The current market is not all bad. Because of the oversupply of homes on the market prices are falling. As a result, you can afford more house than you could have four years ago. This is an extremely exciting time in your life, do your research and jump in!
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