Buying a home is a big deal. Because it’s seen as a sign of adulthood and financial responsibility, most people especially the first-time buyers rush into homeownership.
Owning a home is a big commitment and it’s a truckload of work; still it does not guarantee a good investment. Truth be told, lots of people own a home or homes and yet their finances are a mess.
Buying a home for the first time can be exciting yet stressful. Thinking that you can finally have your own place where you can do whatever you want and looking forward to that feeling of freedom will overwhelm you.
These emotions cause first-time home buyers to make mistakes, like what Time had featured in one of their articles; as they forgot about death grips such as mortgage and expenses and responsibilities that come along with owning a home.
Here are a few tips on a more smooth-sailing experience into buying your dream home for the first time.
Buy a home when you’re financially ready.
Don’t buy a home just because everybody’s doing it or just because of low mortgage rates. Your only reason when buying a home for the first time should be because you simply want to be a homeowner and that you buy a home because you’re settling down and need a place for live for at least five years or more.
Figure out how much house you really can afford.
As a first-time buyer, knowing how much house you can afford can save you from a financial mess. Remember your ultimate goal should be buying a house you love and getting a loan with a comfortable monthly payment.
Unsure how much home you can afford? Use this Mortgage Affordability Calculator, a free tool to find out how much loan you can qualify based on your current monthly income and your monthly debt payments. This will help you understand your achievable investment for your dream home, how much is your affordable loan and the possible monthly loan payment including the interest.
This comes in handy even for the newly-weds looking for their love nest, as the calculator features results for the combined income of a couple. As the saying goes, two heads are better than one, combined income means higher loan amount, and therefore a greater possibility of owning your dream home.
The calculator automatically calculates the difference between the annual income versus home ownership expenses such as taxes, insurances and HOA fees; and the monthly debt services such as vehicles and credit cards, to get the results that are applicable in real-life situations. Just make sure to put the figures accurately and so you get the results that you deserve.
In the mortgage industry, 28/36 are considered ideal by lenders and this is where the computations of this tool are based. The calculator uses a 28% front-end ratio (housing expenses versus income) and a 36% back-end ratio (monthly debt payments versus income). It’s flexible though, as you can adjust them to the limits set by your lender. 28/36 is almost accurate which is why it is still used in some automated loan underwriting software programs.
At the bottom of the calculator, is a table that can show current local mortgage rates in your preferred area to buy the property. It can be of great help when shopping for a mortgage, as you can compare offers on mortgage interest rates which vary from one lender to another.
Don’t make a down payment that’s too small
It’s not always a good idea to avail of the loan programs that offers you to buy a home with smaller to zero down payment.
Using the same calculator cited above will show you that bigger down payment means a smaller mortgage and a more affordable monthly house payment. Note that as you hunt for your dream house, you might also want to avoid paying for PMI, so make at least a 20% down payment.