Once you have your financial house in order, you can take the next steps toward home ownership. You’ll have to come up with a down payment. You’ll have to meet a mortgage lender’s criteria to qualify for a mortgage loan. You’ll have to be ready to make monthly payments on the for as many as 30 years.
Saving enough money for the down payment is a struggle for many people. Many first-time homebuyers forget that there are other expenses that must also be considered when buying a home. There are bank and lawyer fees (closing costs), property and school taxes, homeowners insurance, and sometimes, home association fees.
How much should you set aside as your down payment? A survey by RealEstate.com found that the median down payment for a first-time homebuyer was 10 percent. If you put less than 20 percent down, you generally will have to pay private mortgage insurance (PMI), an extra fee charged by the bank as a form of financial protection. The bank (lender) figures PMI into your monthly mortgage payment.
If saving for that down payment is a struggle, you probably need a budget. Making a budget based on your — and your partner’s — expenses and income can give you a clearer picture of your finances. Think of it as a spending plan, a tool to help you manage your money better. A budget helps you manage your income and expenses, reduce your outstanding debts, control spending and avoid future credit problems.
To design a spending plan, track the money you have coming in (receipts) and the money going out (expenses) for a couple of months. You may want to record all the little purchases you make each day in your smartphone or a small notebook. Or, keep your receipts and enter your purchases into a financial program or spreadsheet later.
Finding out beforehand if you can be prequalified for a mortgage and for what amount allows you to focus on homes for sale in your price range. Moreover, sellers and realtors like dealing with someone who has been prequalified as opposed to someone who has not. Any mortgage lender will run the numbers for you and give you the terms of a potential loan. You are under no obligation to ultimately choose that lender for your mortgage.
Shop around for the perfect fit. You want a real estate agent who truly understands your needs and who is willing to put in the time to satisfy you. Some real estate agents specialize in first-time buyers and the good ones can be invaluable in guiding you through the whole process.
These steps can help streamline the buying process when you finally find the home that you want.
