6 Things to Do Before You Buy Your First Home
The process of buying a house is one of the most stressful and important purchases you'll ever make as a couple. But don't worry, we're here to help. Here, a quick checklist of things to know before you start perusing the real estate websites.
Save, Save, Save
While it's possible to buy a house with no money down, you'll more than likely need to put some sort of money down on your dream home. Keep in mind that anything under a 20 percent down payment will result in higher interest rates, pre-paid monthly mortgage insurance costs, and a higher monthly mortgage payment.
Know Your Credit History
The higher the credit score, the better your mortgage interest rate, so be sure to check your credit reports and see if there are any red flags. Get free reports from all three credit reporting bureaus at AnnualCreditReport.com. Don't be fooled by imposter sites that make you pay a monthly fee. To boost your credit, be sure to pay your monthly bills on time, pay more than the monthly minimums on your credit credit payments, and be sure you have at least 25 percent available credit on all of your cards.
Understand Closing Costs
These sneaky one-time fees and payments are due at closing and can include title transfer fees, escrow payments, attorney fees, and lender fees. Altogether, closing costs average 2 to 5 percent of the cost of the home. That means the closing costs on a $100,000 home can be anywhere from $2,000 to $5,000 on top of your down payment.
Figure Out How Much You Can Afford
A typical rule of thumb is that your monthly expenses including your mortgage payment should be no more than 35 percent of your gross monthly income. Check out an online calculator like the one at NerdWallet and plug in your gross income, debts, and expenses to see a rough estimate of how much home you can afford.
Narrow Down Your Must-Haves
Wouldn't be amazing if your first home came completely turn-key and all you would have to do is move your things in and be done? In reality, your house is not going to hit everything on your must-have list, and you're either going to have to live with it for a while (or forever) or factor in the cost to fix it right away.
Accept the Fact That You and Your Spouse Are Not Chip and Joanna Gaines
In a perfect world, we would all buy a fixer upper for pennies, gut the entire house, and then renovate it from the ground up in our specific taste and style. The truth of the matter is, knocking down a wall or two is a huge undertaking and can open up a can of worms. So unless you're a professional-or have a licensed contractor on speed dial and a hefty contingency fund-leave the gut renovations to the HGTV couple with perfect hair.