You’ve decided that it’s time to own your first house. Maybe you’re tired of throwing money away on monthly rent payments and want to build equity in something tangible. Or maybe it’s just a feeling of independence--being your own landlord, so to speak--which you’re hoping to get from being a homeowner.
Whatever your reasons, you need to do some thinking and deciding before you buy your first home. And the learning curve for first-time buyers can be rather steep. But don’t be discouraged. There is help available for you, and you can also help yourself by following some simple suggestions for resolving many issues before they even come up:
Step 1: Get Pre-approved for a Mortgage Loan
There are advantages to having a pre-approved mortgage. Your dream house might also be someone else’s dream house, so you may have to move fast to secure it. You could lose it if you have to wait for financing. Also, in some cases, a seller won’t even consider an offer that isn’t accompanied by a mortgage pre-approval.
You apply for a mortgage by completing the paperwork and waiting for your lender to verify the information. While the rule of thumb says you should be able to afford a mortgage that’s three times your income, any other debt payments will be subtracted from your income. So, if you enter the process with car payments and credit card debt, you will probably be looking at a less-expensive house.
Set aside money for closing costs (usually 2 to 7 percent of the purchase price) to pay the transfer tax and other miscellaneous costs.
And be aware that even though you are pre-approved, the mortgage can still fall through if you rack up more debt in the interim.
Step 2: Decide What and Where
Now that you’ve clarified how much you can spend on your first home, it’s time to decide what kind of neighborhood you want to live in and the style of house you want. Here are some of your choices:
Each of these has its advantages and disadvantages. And with any of these options you can also choose to save money on the purchase price by picking one that needs work, a fixer-upper. Just remember that you’ll need the money you save on the front end for repairs and renovations, so you need to decide if it makes sense to use your time and money to get the home you want.
There are also plenty of options on where you should live. There are a host of pros and cons to living in the city, the suburbs, and the country. It’s up to you to decide which of these fulfills your long-term goals.
Step 3: Your First Home Budget
Just because you qualify for a $350,000 mortgage does not mean you can afford it. Your mortgage payment, including real estate taxes, property insurance, and any homeowner’s association fees, must fit into your budget when other expenses--utilities, food, auto expenses, clothing, and healthcare, for example—are added in.
If you have never bothered to create a budget, now is the time to do it. You’ll need to look at the total cost of owning a house. If it doesn’t add up, you might not be ready to ditch your landlord just yet.
If you have accumulated savings while living in rent, you can lower your mortgage payment by using some of it for a down payment. Even though it’s possible to purchase a house with little money down, putting a least twenty-percent on it will allow you to avoid paying Private Mortgage Insurance(PMI) plus it lowers your monthly payment. It might make the difference between living in your first home with a balanced budget or staying in rent.
Step 4: Don’t Forget about Maintenance
Any house you buy will need to be maintained. Painted walls fade, furnaces need expensive filters, pipes leak, and the list goes on into infinity. At some point, it will also need its share of major repairs like roof and window replacement. All of these come with the territory of home ownership.
However, if your dream house sits on two or three acres in the country, maintenance takes on a whole new meaning. Be prepared to spend even more taking care of the grounds that surround your house. Here’s why:
- Lawnmower vs. tractor: Even a postage-stamp-sized lot requires mowing, but for a few acres you’ll need a riding mower, and you’ll be investing thousands for a good one.
- Beds give you home curb appeal: They have small trees, shrubs, and flowers, which can look beautiful year round. But they’re expensive to plant and require mulching, trimming, and weeding to keep their appealing look.
- Lots of trees in the area: Yes, trees are beautiful. They help keep your house cool in the summer and protect you from winter winds. But in the fall they lose their leaves. If you have the time, you can rake them and haul them away. If you’re already leading a busy life, you can pay someone else to do it or purchase a lawn vacuum for a few hundred (or thousand!) dollars.
- Crabgrass and dandelions: If you want to maintain that curb appeal, it won’t do to have bright yellow flowers sprouting up in your lawn every April. You can either spend for a lawn service, which is expensive for a large property, or buy equipment and supplies and do it yourself.
- You bought your property where it snows: The bigger the property, the more snow you will have to remove. A snow blower is not a luxury like it might be on a smaller lot. In the country, it becomes a necessity.
And don’t forget, every piece of equipment you buy to help you maintain your property must itself be maintained.
Step 5: Find Someone to Help
Whether you’re buying your first home in Malibu, Pacific Palisades, or LA’s west side, you need the help of an experienced and dedicated Real Estate Agent. Brian Merrick meets those qualifications and more! Purchasing your first home is a big step. Use only a qualified agent when you take it!