When you’re about to buy property for the first time, a detailed checklist comprising everything you need and expect from your first home is surely needed. A housing property can serve the purpose of an investment or self-use. Once you know the fundamental objective behind buying the property, you can employ the home buying guide elaborated herein to make the right decision. For instance, if you’re purchasing a home for self-use, the road ahead is quite simple; but if you’re buying a home for investment purposes, the aim would be getting a good appreciation value for your property and earning a rental income out of it.
So, before we get to our guide for first-time home buyers, you need to clarify the kind of property you aspire to buy. Then, factoring in the upkeep costs, budget, and type of investment, you can decide on the type of investment that suits you best. You can choose between villas, residential plots, apartments, etc., but making the selection can be quite a daunting task, especially for first-time buyers. So, seeking assistance from someone who has recently invested in real estate could be a good plus.Shutterstock
Here is our guide that will come in handy for first-time homebuyers:
Start saving early on
You cannot depend solely on a loan when shopping for a home. There are several different costs involved in buying a home. You need to consider all costs and modify or plan your savings accordingly. Here are the essential costs involved in saving for a home:
- Down payment
The amount of down payment you need to give depends on the lender and the kind of mortgage you select. There are some traditional loans with excellent credit for first-time homebuyers. These are typically as low as three percent down. However, in all honesty, even a small down payment can be pretty tricky to save for some people. For instance, if your eyes are on a home worth $400,000, and you have to pay a down payment of 3 percent, i.e., $12000. So, your savings should be enough to pay for the house.
- Closing costs
These expenditures comprise the fees you pay to finalize the mortgage on your house. Closing costs can be anywhere between 2 percent and 5 percent of the loan amount. In some cases, you can request the seller to pay a chunk of the closing costs, which can amount to a considerable level of savings for you.
- Move-in expenses
Once you move into the house, you will need some cash in hand. So, you need to set aside some money for upgrades, immediate home repairs, and furnishings.
Location is a pivotal consideration
The location of your home should be decided, bearing in mind your place of work, daily schedule, and proximity to amenities such as hospitals, schools, and markets. Thus, the location of your home is a primary consideration. Your home should be near the hospital or must have a hospital where you can head to in case of an emergency. Some people need a home with good access to public transportation, such as a bus stand and metros. You must carefully consider all the factors when shopping for a home.
The neighborhood where the house is located also plays an active role. When selecting a location, you must also consider the neighborhood’s applicable rules and regulations. Depending on your choices, you might want a home in a quiet neighborhood. Some people also like a home that has greenery or a small garden around the building.
Know how much can you afford
Before getting emotionally attached to a home you come across, ascertain your monthly budget. Such consideration will give you a clear idea of how much you can afford when buying a house. While deciding on the budget, you need to consider housing costs like insurance, taxes, and homeowners association fees. All of these costs should not be over 25 percent of your take-home pay.
For instance, if your take-home pay is $8000 per month. Now, multiply the same with 25 percent. So, your maximum monthly home payment should be a maximum of $2000. However, do not forget to factor in the homeowners’ insurance and the property taxes.
Know which type of loan suits you best
Several different kinds of loans are available. So, before you approach a lender for any loan, you must decide whether you want a mortgage with a fixed or adjustable rate. The former has a slightly high-interest rate, but herein the internet rate stays constant. In the case of the latter, you will be paying a lower interest in the starting years, usually five to seven years. Then it will adjust as per the remaining term. So, naturally, when the rate goes up, your monthly payout will rise, and you will always know what your monthly dues are.
When it comes to knowing the loan you can apply for, also consider the term of the loan. The time frame of the term normally begins with 10 and can even go all the way to 30 years, or even more. Broadly, a loan with a shorter term will charge a low-interest rate. However, in this case, the monthly payout will be high. Thus, there is lesser flexibility in the monthly budget. Moreover, your payout in interest will be less across the term of the loan. So, deciding whether you want a low monthly payout or overall savings would help.
Typically, the first-time homebuyers will go with a fixed rate of interest and a 30-year-long term. However, ARM can be a better alternative if you do not intend to live that long in the home. The fixed-rate loans will provide greater stability for anyone who wishes to stay in one place.
You can find many loan programs to select from, such as Federal Housing Administration or conventional loans. However, there may be specific programs that you might not qualify for. So, be careful about the terms to see that you are eligible for the loan.