Do’s and Don’ts for New Homebuyers
PMI. HOA. FHA. The swirling alphabet soup of home buying terms can be somewhat intimidating for first-time homebuyers. While making critical decisions regarding your new home will never be as easy as A-B-C, here are some tips to make the process a little easier.
Shape up your finances. Tried and true, this advice may be the most important in your road to home ownership. Have an emergency fund equal to six months of living expenses, save for a down payment, get your credit in order and don’t buy more than you can afford.
Pay down your debt. Debt-to-income ratio is one of the first things lenders evaluate when assessing a buyer’s ability to make mortgage payments. A general rule of thumb is that you should be able to afford a mortgage three times your income, but lenders subtract debt payment from your income. If you have a big debt, like student loans or credit cards, you have less income –so that means less house. Make repayment a priority.
Do your homework. Work with a reputable lender to find out the price of a home you can easily afford and what the down payment will be. Look for a home under your budget to allow yourself a financial cushion.
Evaluate all of your home expenses. There’s a lot more cost outlay in owning a home than just monthly mortgage payments. Property mortgage insurance (PMI), taxes, homeowners association (HOA) dues, plus maintenance and electric and water bills can push budgets to their limits in no time. Experts recommend that you spend no more than 28 percent of your budget on home expenses.
Learn about the neighborhood. Visit your potential neighborhood at night or during peak activity times. Research the average age of residents in your neighborhood, schools, parks or other amenities that are important to you.
Think long-term. Are kids in your future? Have aging loved ones who need assistance? Planning a move in the next five years? If you buy a house on a busy street or with a floor plan than includes steep stairs, that might not work best for your needs or have the best resale value.
Ask about assistance. Be sure to ask your Realtor® or lender about down payment and other assistance programs for first-time buyers, which could significantly reduce your upfront cash commitment.
Skip mortgage pre-qualification. You’ll avoid any surprises and know exactly what the lender will provide to you, plus you may have a competitive edge if another buyer is interested but not pre-qualified.
Spend all or most of your savings on a down payment and closing costs. Some people scrape all their money together to make the 20 percent down payment so they don’t have to pay for mortgage insurance, but then have no cushion for monthly living expenses.
Pass on the home inspection. Buyers may try to cut costs by omitting a home inspection, but not finding defects before you move in could be quite costly. It’s particularly important if you are buying an older home
Buy new stuff as soon as you sign the contract. Some lenders pull credit reports before the closing to see if buyers’ financial positions have changed. If there is a lot of major new debt, the closing could be jeopardized.
If you are a first-time homebuyer, Pardee Homes’ New Home Specialists can help you learn more about our resources for first-time homebuyers, as well as the HomewardBound credit repair and enhancement program if that’s a concern.