For first-time home buyers, it is easy to get all caught up with the excitement of making your first home purchase. You are only a few steps away from owning a real estate. You can finally decorate your own home as you please and forget about renting the roof above your head. But before you even start searching for houses and shopping for home loan rates, there are certain preparations you ought to tackle first. This is since a home purchase can turn your finances around and affect every aspect of your life.
You can make the most out of your new investment by taking the following into consideration.
Pay Down Most of Your Debts
What debts do you currently have under your name? Are you still paying for your student debt? Or maybe you have that car loan, a personal loan, or even a few credit card debts you haven’t finished paying for.
Some home buyers believe they can readily accommodate a home purchase after they managed to find a monthly home payment equivalent to their rental fees. But remember that owning a house requires more funds than simply renting a unit. You will have more financial obligations, like your new taxes and home maintenance and repairs.
If you are still paying for a huge amount of debt, then it pays to reconsider your plan to buy a house soon. Add in a mortgage into your number of debts can easily put you in a tricky financial situation. You don’t want to end up with a notice for foreclosure just because you can no longer afford to pay your mortgage along with your other debts.
Choose to Pay a Sizeable Down Payment
Many can’t afford to pay for a house in cash. When it comes to your down payment, don’t simply choose a mortgage that allows low to no down payment. This is since you need to compensate a longer mortgage term and higher monthly fees for your low down payment.
If you wish to save more when buying a house, then save up enough down payment. A good rule of the thumb is to pay down at least a 20% down payment to avoid private mortgage insurance. Your monthly rates will be lower and you can choose a shorter loan so you can finally pay off the house in a shorter period of time.
To get an idea of how much down payment you need to save up for, you can get a preapproved for mortgage. This will enable you to determine how much of a house you can really afford. Check the 20% of the home price you can afford and that is the least amount of cash you need to save up before buying.
Keep a Good-paying Job for at Least Two Years
One reason why many home buyers are rejected for a home loan is that they fail to stay at one job for a considerable amount of time. Lenders want their borrowers to have a good employment history. This means they are not comfortable lending money to job hoppers.
If you keep on changing jobs, this makes lenders think your source of income won’t be consistent. This puts your profile at a high risk of failure to repay the loan. As a general rule, it is a good idea to remain at a good-paying job for at least two years so you can get a yes from the lenders.
Build an Emergency Fund
Let’s say you can comfortably afford a home purchase in a nice neighborhood. But simply knowing you can afford to buy a home does not automatically mean you can afford all the costs associated with homeownership. Aside from the taxes, utility bills, and closing costs, there’s the need for regular home upkeep.
Many home buyers are not financially and emotionally prepared to pay for their home’s maintenance and repairs. They often underestimate the costs of home upkeep. Many don’t even set aside enough money each month to pay for such projects.
Failure to tackle such a responsibility can only lead to bigger financial headaches in the future. Ensure that before you even buy a house, you already have at least three to six months’ worth of savings dedicated to home upkeep. After the home purchase, you also need to dedicate a consistent amount each month to build your home repair and maintenance emergency fund.
There are many financial risks associated with buying real estate. This means there is a need to prepare your finances well before you take the next big step. If you want a better home-buying experience, make sure to take into consideration all factors that can affect your home purchase. Early preparation and planning will better help you navigate homeownership.