Being first-time homebuyers is exciting! But I know it can also feel overwhelming—especially when you see other homebuyers purchasing at a median of $250,000 and available homes flying off the market in just three weeks.
With real estate trends like those, you might be tempted to make an impulsive purchase that could hurt your financial goals and keep you paying a mortgage well into retirement.
We’ve put together three tips for first-time homebuyers as they delve into the home-buying process. Put these tips into practice today so your first home purchase is a blessing, not a burden.
Pay Off All Debt and Build an Emergency Fund
Owning a home is costly—much more costlier than renting, even if your monthly house payment will be similar or cheaper than your current rent cost. It may seem like it does not make sense, but that is because when you own a home, you are responsible for all the maintenance and upkeep expenses. And those can add up really fast! So, before you even think about purchasing your first home, make sure you are debt-free and you have an emergency fund of two to six months of expenses in place.
When you buy a home with no payments (besides the mortgage) and have a nice hefty emergency fund, you will have the cash to pay for big expenses that suddenly come your way. You will be able to love the life you have set up for yourself because stress and worry will not be part of the equation!
Now, once you are free from debts, stay debt-free. So, when you are shopping for your first home and getting excited about decorating and filling it with new fixtures and furniture, be wary of your budget.
You, like other first-time homebuyers, might have some empty rooms for a little while, but your budget and your future self will be thankful! And if you find yourself thinking, Oh well, I’ll just put it on credit—le me stop you right there! Debt is dumb. Also, taking on new debt in the midst of buying a house could hamper your approval for a mortgage and make you miss out on the perfect home. Do not do it!
Find Out How Much Homebuyers Can Afford
Before you get emotionally attached to a beautiful home, check your monthly budget to know how much house you can afford. You need to allot funds for other things, so make sure your monthly housing expenses (including HOA fees, insurance, taxes, etc.) are going to exceed 25% of your monthly take-home pay.
That is an easy way to set a number in your ballpark. But do not forget that property taxes and homebuyers’ insurance will also affect your monthly payment. You will also need to consider those numbers before settling on a maximum home price.
Since property tax rates and the cost of homeowner’s insurance differ, check with your real estate agent and insurance company for estimates to calculate the price of the house you can afford.
Save for Closing Costs
Along with your down payment, homebuyers will also need to pay for closing costs. If you are a first-time homebuyer, you may be wondering how much it costs to close on a house. On average, closing costs are about 3–4% of the purchase price the house. Your lender, nevertheless, will give homebuyers a specific number so they know exactly what to bring on closing day.
You want to save for your closing costs and down payment as quickly as you can. In fact, it is okay to put retirement savings on hold for a while to save for a home—but you have got to hustle!
Pick up a second job, sell whatever is not nailed down, add a roommate and charge rent, move into a smaller space—homebuyers need to do whatever they need to do to save for their closing costs and down payment as fast as they can.
Ready to Get Started?
As homebuyers, your first home is a big purchase—perhaps even the most significant one you will have ever done up to this point in your life! Because of that, you do not want to risk messing this up. A real estate professional can help you and other first time homebuyers by taking the weight off your shoulders and helping you to find a home, negotiate a deal, and see the homebuying process through until closing.