How exciting! You’re about to go into so much debt that it could take you 30 years to get out of it -kidding (kind of). You’ve probably heard that real estate is a great investment. And it totally is! But, in some cases buying a house can be a nightmare in disguise. You never really feel like you’re ready to buy your first home – or you might not even know what actually goes into buying a home.
Whatever the case, we are here to give you the low-down on what you should know before buying your first home. If you check off all these boxes then your first home purchase will go easy breezy!
GETTING APPROVED IS MORE THAN JUST YOUR INCOME
Before you even begin thinking of purchasing a home you need to make sure you’re even approved. A family “knew” the amount they wanted to spend on a house and what they could afford. But, they didn’t realize the approval process was more than just what they wanted to spend!
There are multiple different factors that go into a pre-approval process. The main ones are:
Based on your income, they’ll figure out how much you can afford. The higher the income, the higher the loan. That doesn’t mean that if you have a low income you won’t get approved for a loan.
Typically you need to currently be at the same job for 2 years or more. This isn’t the time to be switching jobs or trying to figure out your career path. They want to see consistency. We are not saying you can’t get a loan, because it can be done. You’ll just have to jump through a lot more hoops if you’ve recently switched jobs in the last 2 years.
Using your credit score they can figure out how “loan-worthy” you are. Just make your payments, people. If you don’t make your payments they’re not going to loan you the money.
THERE’S MORE EXPENSES THAN JUST A MORTGAGE PAYMENT
You’ve got your pre-approval back, and you’re pleasantly surprised that they approved you for more than you thought. This is where home buyers make the SINGLE biggest mistake. Purchasing a house at the max they were approved for.
If you can take away anything from this post then we want it to be this – DO NOT purchase a home for the max amount you are approved for. There’s a reason that it’s your max amount.
If you’re barely making ends meet just making your mortgage payment, what happens when some unexpected expense comes up such as a job loss or medical bills (and yes, it CAN happen to you). There’s always something that comes up and you definitely don’t want to be scrambling to pay your mortgage.
Not only do you have to consider PMI, but closing costs. You’re going to spend anywhere from 2%-5% of the home price on closing costs. If you feel completely comfortable and confident that you can pay for the closing costs and put a decent amount down (preferably 20%) then you’re pretty safe. No use paying more than you should just because you didn’t want to take the extra year or two to save.
HAVING AN EMERGENCY FUND WILL MAKE OR BREAK YOU
We know you think that nothing is going to happen to you and life will always be fine and dandy. But we hate to tell you that you’re wrong. We just want you to be prepared and smart. Typically, you need to save 1% of your home costs for on-going maintenance every year.
IT’S NOT WORTH IT IF YOU’RE THERE FOR LESS THAN 5 YEARS
It’s been proven that you need to be in a Home for 5 years to start breaking even.
That first 5 years is basically just paying the interest. At that time you haven’t even made a dent in your principal. You would now have to try to resell at the purchase price you bought for or to get any money back, try to sell for higher. Doesn’t that sound like such a hassle?!
There’s so much upfront cost that it’s not even worth it if you’re not planning on sticking around for that long. In this case, renting may be a better option.
YES, THERE IS SUCH A THING AS A SELLERS AND BUYERS MARKET
The market you’re in can extremely affect your buying power. Builders can sell their homes ridiculously overpriced and have them snatched up in days.
In a buyers market you have a lot more leeway. You have the deciding power of finding a home that you truly love (and not just picking one because you can’t find anything else). You also have the opportunity to even come in UNDER asking price. If you know that you’re in a seller’s market and are afraid of paying way too much for a house, it doesn’t hurt to wait it out.
YOUR GUT KNOWS MORE THAN YOU DO
Gut feelings go a long way. Your gut is a lot smarter than it takes credit for, and you should listen to it. Do you feel ready to purchase your first home? Is it something that is truly in your families best interest or do you just want a home because everyone else is doing it.
You may never feel totally confident about purchasing a home (and that’s completely normal) but just make sure you’re prepared. Buying your first home can really be a great experience and an even better long-term investment.