Home Buying Tips for First-Time Buyers
Buying your first home is a major financial move the requires careful forethought and planning. Why do you need to be so careful? Take a look at the record-breaking number of home foreclosures right now.
The point is, you really have to do your homework before buying a home so you don't end up with a financial trouble down the road. Here are three things you can do to be a financially smart home buyer:
1. Check Your Credit.
Most mortgage lenders will use your FICO scores to judge your loan eligibility. When you hear people refer to a credit score, they are usually referring to your FICO score. A higher credit score will enable you to qualify for a lower interest rate (and thus a lower mortgage payment in general).
With many lenders, a credit score of 650 is sort of a border line. At or above 650, and you are considered a safe risk for the lender and should be able to obtain a mortgage loan. On the other hand, if your credit score is below 650, you may find yourself in a bad credit home buying situation that requires you to pay a higher interest rate.
The best you can do in the long-term is to maintain good credit. We also offer articles on this site that show you how to improve your credit score if it is low. Remember, the better your score, the lower the interest rate on your mortgage.
2. Determine a Realistic Budget
As we have seen in the news lately, with all the hubbub over home foreclosures, mortgage lenders often make loans to people who probably have no business taking on such a loan. In other words, they extend mortgage loans to home buyers who are poorly qualified for the loan. They do it to assign high interest rates for profit in the short term. But if the mortgage loan later resets to a higher interest rate (like an adjustable rate mortgage), the homeowners who were barely getting by before are now really in trouble.
The point is, you need to determine your home-buying budget for yourself. Don't make the mistake -- as many home buyers do -- of thinking you should borrow the maximum amount a lender is willing to offer you. That's a backward way of thinking. You should only take on a mortgage that you are comfortable paying each month.
Start by using a free mortgage calculator to break a home's sale price down into monthly payments. Factor in a higher interest rate than what the mortgage calculator defaults to, just to play it safe. For example, if the mortgage calculator has 6% already filled in for interest rate, bump it up a point to 7%. This will give you a good idea of what the mortgage payments could be on a home in that price range. Could you pay that amount each month?
3. Start Saving Your Cash
I can almost guarantee you that you'll have out-of-pocket expenses when buying your home. These costs will likely add up to more than you anticipate. That's just the reality of home buying in this country. You will pay for a home inspection, an appraisal, and several other things that will make up your closing costs. And that doesn't even account for moving expenses, purchases for the new home, etc.
Having extra cash will help you through the home buying process, but it's always a good idea to have extra money saved as a homeowner. If something goes wrong with the house -- like a faulty water heater or a leaky roof -- you'll need some cash reserves to handle the problem. Get into the habit of putting money aside each month, after you make your mortgage payment. This is one of the most responsible things you can do as a homeowner.
Happy home buying!
The point is, you really have to do your homework before buying a home so you don't end up with a financial trouble down the road. Here are three things you can do to be a financially smart home buyer:
1. Check Your Credit.
Most mortgage lenders will use your FICO scores to judge your loan eligibility. When you hear people refer to a credit score, they are usually referring to your FICO score. A higher credit score will enable you to qualify for a lower interest rate (and thus a lower mortgage payment in general).
With many lenders, a credit score of 650 is sort of a border line. At or above 650, and you are considered a safe risk for the lender and should be able to obtain a mortgage loan. On the other hand, if your credit score is below 650, you may find yourself in a bad credit home buying situation that requires you to pay a higher interest rate.
The best you can do in the long-term is to maintain good credit. We also offer articles on this site that show you how to improve your credit score if it is low. Remember, the better your score, the lower the interest rate on your mortgage.
2. Determine a Realistic Budget
As we have seen in the news lately, with all the hubbub over home foreclosures, mortgage lenders often make loans to people who probably have no business taking on such a loan. In other words, they extend mortgage loans to home buyers who are poorly qualified for the loan. They do it to assign high interest rates for profit in the short term. But if the mortgage loan later resets to a higher interest rate (like an adjustable rate mortgage), the homeowners who were barely getting by before are now really in trouble.
The point is, you need to determine your home-buying budget for yourself. Don't make the mistake -- as many home buyers do -- of thinking you should borrow the maximum amount a lender is willing to offer you. That's a backward way of thinking. You should only take on a mortgage that you are comfortable paying each month.
Start by using a free mortgage calculator to break a home's sale price down into monthly payments. Factor in a higher interest rate than what the mortgage calculator defaults to, just to play it safe. For example, if the mortgage calculator has 6% already filled in for interest rate, bump it up a point to 7%. This will give you a good idea of what the mortgage payments could be on a home in that price range. Could you pay that amount each month?
3. Start Saving Your Cash
I can almost guarantee you that you'll have out-of-pocket expenses when buying your home. These costs will likely add up to more than you anticipate. That's just the reality of home buying in this country. You will pay for a home inspection, an appraisal, and several other things that will make up your closing costs. And that doesn't even account for moving expenses, purchases for the new home, etc.
Having extra cash will help you through the home buying process, but it's always a good idea to have extra money saved as a homeowner. If something goes wrong with the house -- like a faulty water heater or a leaky roof -- you'll need some cash reserves to handle the problem. Get into the habit of putting money aside each month, after you make your mortgage payment. This is one of the most responsible things you can do as a homeowner.
Happy home buying!
Labels: Home buying tips
posted by Brandon at
6:17 AM
