There are some essential tips for first time home buyers that can help you make better decisions when it comes to financing your first house. You might think that getting a great first home has to do with neighbourhoods and square footage, but what you really ought to be thinking about is finance. Most people spend a lot of time thinking about what they want their first home to look and feel like, but not nearly as much time figuring out how they will pay for it. Before you step foot into one house you should first plan out your finances so that you know what you can really afford.
Essential Tips For First Time Home Buyers
Tip One: Figure out what you can afford. Many first time home buyers make the mistake of allowing the bank to tell them how much they can afford by buying a home based on their loan approval amount. This is a huge mistake. They way to figure out how much house you can afford is through careful evaluation of your finances. Just because you can get approved for more money does not mean that you can afford to take out a loan for that amount. Be smart and only borrow what you can afford.
Tip Two: Do not forget the hidden costs of home ownership. If you have always rented a house you might not have had to pay all of the utilities, taxes, or insurance. One of the essential tips for first time home buyers is to make sure that every expense is included in their monthly budget and to get a loan that fits into that budget. If you neglect to include these expenses you could wind up with a mortgage that you cannot pay after you have paid all the other bills associated with your new house.
Tip Three: Save as much money as you can for your deposit. Saving a lot of money is difficult, but it can mean a lot of savings in the long run when it comes to your mortgage. The more money you have to put down the better interest rate you will be able to get which leads to less cost over the life of the loan. Also, if you have a significant deposit you can avoid costly mortgage insurance. Try to have between 5% an 10% of your loan amount for the deposit.
Tip Four: Check your credit file before you apply for a loan. The better your credit score is the better interest rates and terms you will be able to get on your mortgage. Get a copy of your credit report and make sure that there are no errors on it. If there are some defaults or problems that will hold you back from getting the best rate fix them before you apply for your loan.
Tip Five: Get a pre-approval letter from your lender. The pre-approval letter lets the realtor and the seller know that you have the financing to purchase a home at a specific price. If you were to make an offer on a home without a clause in the contract that says “pending finance approval” you could wind up with a legal issue. Remember that those offers are legally binding contracts so do not sign one unless you already know that the bank has approved your loan amount.
Along with these essential tips for first time home buyers you should also be mindful of the fact that it is your first home. This house does not have to be your perfect dream home. You do not need a house to fit the four children that you plan to have, only the ones that you have right now. Get the house that you can afford and that suits your current lifestyle, not the life that you hope to have in ten years.
Timothy Ng is a personal finance writer, and has a real passion for encouraging people to compare credit cards to ensure they get the best deal. Check out his comprehensive guide to no annual fee credit cards where he provides an in-depth overview and analysis, to help you find a better deal.
