Purchasing a home involves a lot of language and action that may not be common to first-time homebuyers. When you factor in the relatively high investment in a home, it only makes sense to make sure you are as familiar with the process as possible before buying a home. The majority of learning that needs to be done by first-time homebuyers pertains to mortgages.
Work on Your Credit Score
The importance of maintaining a good credit score is often discussed. But never is this concept more applicable than when purchasing a home. The best interest rates are often given to the homebuyer with the highest credit score. Even a one percent decrease in the interest on a mortgage could save tens of thousands of dollars on a $200,000 mortgage.
Put Down 20%, if You Can
It was once standard practice for most homebuyers to save until they possessed 20 percent of the cost of a home to put down on a mortgage. It is a practice that first-time homebuyers today should revisit. Like other types of installment loans, the security on the loan will affect the terms of the loan. The second benefit of a 20 percent down payment is that it eliminates the need for private mortgage insurance. PMI is extra insurance paid by homeowners who owe more than 80 percent of the cost of a mortgage. Eliminating this monthly expense will save you a significant amount of money. Other advantages of a 20 percent down payment are better chances to qualify for a loan, paying less over the life of the mortgage, and the ability to build instant equity.
Keep the Payment to 1/4 of Your Take-Home Pay
It is a good idea to only accept a mortgage that will result in monthly payments no more than 25 percent of monthly take-home pay. You should adhere to this principle even if the bank is willing to loan you more money. First-time homeowners often underestimate the other expenses involved with owning and maintaining a home. Keeping your mortgage at 25 percent of your take-home pay will ensure you have sufficient funds for your monthly expenses, as well as, any unexpected costs that occur.
Getting pre-approved by a mortgage lender will benefit you in two ways: First, it will predetermine the limit for the price of your new home. Secondly, it will demonstrate your seriousness to real estate agents who will then negotiate more aggressively with sellers.
Purchasing a home can be a complicated process for a first-time homebuyer. This includes learning and understanding how mortgages work. Navigating the mortgage process will be a little simpler with the four tips profiled above.
If you still have questions about buying a home, please feel free to contact Magnolia Properties. We would be happy to help you navigate the process of finding and purchasing your first home!