Are you considering buying your first home? It’s a big (and exciting!) decision and you will want to make certain that you’re in the best financial position you can be prior to signing on the dotted line. It’s a serious commitment so be sure you maximize your financial investment, getting the most home for your money and the lowest mortgage interest rates available to you. You’ll need to decide how much you can afford to spend and what type of mortgage will best fit your needs. In order to do be prepared when you first step foot into a sales office or model home follow these great tips from the National Association of Homebuilders to ensure that you are in a good financial position for homeownership:
Familiarize yourself with new home industry lingo. The National Association of Home Builder’s has a Home Buyer’s Dictionary that will be a good resource for you.
Determine a monthly budget and you much you can afford to pay for a home on a monthly basis. You don’t want to be house poor and sacrifice too much in other areas of life because all of your income is going to your mortgage payment. There are several factors to keep in mind when looking at housing costs. Remember that your “mortgage” payment will include the principal, the interest and monthly escrow for taxes and insurance. If you plug a home price into a mortgage calculator it might only include the principal and interest amounts. Also keep in mind home owner’s association fees or if you’re shopping for a condo, condominium fees. When you figure out your bottom line, stick to it! Don’t let a realtor or lender pressure you into a more expensive home than you are comfortable with. Also keep in mind the amount you may need for a down payment, this will vary based on your loan type. Talking with a lender will give you a good idea of the loan programs available and how much money you potentially need to save.
Try and reduce your debts. The more you can pay down your credit card debt, the more home loan you can qualify for. Overall, your combined debts should be less than 40% of your income. You’ll hear this referred to as your “debt-to-income ratio.”
Find a local first-time home buyers seminar that can provide you with more information and the opportunity to ask questions. If they have a credit counselor for you to talk to, be sure they’re not affiliated with a lender & pushing their specific mortgage products. If you check the U.S. Department of Housing & Urban Development’s (HUD) website they often have free housing seminars and counseling.
On the HUD website you will also find a helpful booklet “Buying Your Home: Settlement Costs and Information.” This will paint a full picture of the purchase and closing process and the expenses you will likely accrue along the way. It can be helpful to have reviewed this information prior to meeting with a lender so that you know what to expect and a ballpark for what your settlement costs should be.
Once you are familiar with the process and have determined your budget, meet with a lender. You can assess the loan choices available and what loan best suits you. At this point it’s good to get pre-approved for the loan. You’ll need a pre-approval letter prior to making an offer on a home (and sometimes prior to working with a real estate agent, read here to learn the benefits of working with an agent when shopping for new construction). The pre-approval you get from your lender will be subject to income and credit verification, along with an appraisal, prior to closing on the home.
Once you’re in shape financially you can start the fun part and begin shopping for your new home! Use The Guide’s handy search functionality to find some new construction communities that appeal to you. Once you’ve got a short list visit some neighborhoods, tour some model homes and be sure to ask the onsite agent any questions, they are there to help you along the way!
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