Buying a home is an exciting and terrifying time for most people. The excitement usually comes from finally settling down in a place of your own, but the fear usually comes from not knowing what you’re doing or how expensive it will be.
If this is something you need help with, here are essential steps that will help make the process much easier and less stressful.
Pay Off All Debts and Build an Emergency Fund
The first step to becoming a successful first-time homebuyer is to get your finances in order. Pay off all of your debts and build an emergency fund, so you have some cushion in case of unexpected expenses.
You can clear your debts by selling some of your valuable items, like jewelry or electronics. You can also make additional money by selling furniture and other household goods you no longer use.
Use the 25% Rule To Know How Much House You Can Afford
The second tip for first-time homebuyers is to follow the “25 percent rule.” This means that when looking at homes in a specific price range, look for one that costs about 25 percent less than your monthly income after taxes. For example, if you bring home $4000 per month before deductions, do not buy any property over $6000/month because it will be too difficult to make mortgage payments on top of all your regular expenses. Consider renting instead if this number seems low until you’ve saved more money.
Some home buyers ran a recent post by the Chicago Tribune that says you should only spend about 25 percent of your monthly income on rent. However, this rule does not apply to home buying because there are many more factors involved in deciding how much house you can afford.
Save a Down Payment
The third step to becoming a successful first-time homebuyer is saving for a down payment. Most lenders require at least a ten percent down payment, but twenty percent is ideal. This will help you avoid paying mortgage insurance and keep your monthly payments low.
Don’t Forget To Save for Closing Costs
In addition to your down payment, don’t forget to save for closing costs. These are the fees associated with buying a new home, like attorneys’ fees, title search fees, and credit check fees. Closing costs typically range from two to five percent of the house’s purchase price.
Find a Home in Your Price Range
Once you’ve saved up enough money for a down payment, the next step is to find a home for sale in your price range. If you’re shopping online, look for homes that cost about 25 percent of your monthly income after taxes and include closing costs as well.
Your budget is an essential part of finding a new home. For example, if your budget is $500,000 and you’re looking in an area where the median house price is only $300,000, then there’s no point in wasting time searching for homes that are out of your reach.
It’s essential to research areas before actually making an offer on a place you like. First, make sure it fits with your lifestyle – are there good schools nearby? Is it close enough to work or public transportation? What is the crime rate in this area? Keep these things in mind when looking at houses, so you don’t end up moving again soon because the neighborhood isn’t right for you or feels unsafe.
Being successful as a first-time home buyer takes time and effort but can be well worth it in the end. Follow these tips to get started, and you’ll be on your way to owning your own home.