Ask homeowners about the first time they purchased a home, and thats the answer youre likely to hear. Needless to say, there are many mistakes first-time home buyers make. Some are minor, some are costly and some even lead people to purchase a home that is completely wrong for them.
Luckily, all of these mistakes are avoidable if you know what to look for. Here, we provide you the tips you need to avoid these common mistakes before you make them.
Getting preapproved for a mortgage helps home buyers in a few ways. It ensures they have the financial ability to purchase a home, helps them understand how much home they can afford and shows sellers and real estate agents they are serious shoppers.
Its important to understand the difference between prequalification and preapproval. Prequalification is an important tool for helping you figure out what you can afford, but there is no verification of the information you enter. Preapproval, on the other hand, means that a lender has verified your financials, your credit history and your ability to repay and has decided that they are willing to lend to you if the house you choose also meets their requirements.
The amount the lender says you can afford ount you can comfortably afford. The lender may know your income and even your debt-to-income ratio, but that’s all theyve considered at the preapproval stage.
Your Current Budget
What your lender doesn’t know is how much you pay for groceries, utilities, gas and insurance, or how much of your budget these bills will consume when you move. Your lender also doesn’t know that you love to travel, eat out regularly or see as many concerts or shows as you can get tickets for.
Use our home affordability calculator to find a more realistic upper limit for your home purchase than the preapproval amount. Be honest about your budgetary priorities. If you cant live without designer coffee each and every morning, factor that into your budget. Otherwise, you could end up house poor and resentful of your home.
Your New Budget
Your monthly mortgage payment is only the beginning of your new expenses . Remember that your monthly mortgage payment will include not just principal and interest repayment, but also escrow for property taxes and homeowners insurance together referred to as PITI as well as any private mortgage insurance payments you may have. FHA loans also have their own mortgage insurance premiums. If youll be joining a private community, youll have to pay a homeowners association fee as well.
Forever Home Vs. Starter Home
You ed of your perfect forever home, not a starter house, but https://rapidloan.net/installment-loans-mi/ that doesnt mean it has to be your home now. Youll live there someday, but for now, a starter home might be a better choice.
A bigger house means more space to heat and cool, resulting in higher utility costs. More home means more rooms to furnish. More home also means more roof, flooring, siding and windows to maintain, replace or repair. Especially if youve always rented before, the costs of home ownership will surprise you.
One solution? Make your first home a starter home. They tend to be smaller, less expensive and closer to city centers. Or consider buying a multifamily home, and have your tenants help pay your expenses. One great thing about multifamily homes is that you get to use the income they generate when youre applying for a mortgage. Either way, your starter or multi-unit home could continue earning you rental income when you find that forever home of your dreams.