Feb
02

Home Financing Tips for First-Time Buyers

February 02, 2015

Home Financing tipsThe U.S. economy is starting to pick back up, and in a recovering market, optimism spreads quickly meaning people will buy more frequently and readily. Specifically, people will be looking into real estate, as most major markets are finally returning to health. With home buying comes home financing, and a result of the real estate bubble pop was tight regulations that were placed on the home financing process. These stricter regulations have created concern for first time home buyers, as the process of buying a home is already overwhelming in its own right.

If you’re ready to purchase your first home, the first step is to be prepared. Working ahead is always a good idea no matter the topic; however, in home buying it is essential. Sit down and decide your budget and the type of mortgage that works for that budget. Prior to entering a new home, a model home, or especially a sales office, use the resources you have at your disposal to be prepared, and in doing so, place yourself in the best financial situation.

Budget Appropriately and Realistically

The worst thing you can do to yourself is to be idealistic about how much you can spend on a home. You’ll want to figure out how much you can afford to pay monthly while still living comfortably. Be your own financial planner and accountant by writing down your expenses. These include food, clothing, entertainment, utilities, insurance, loans, credit cards and other debt.

Don’t forget that a monthly payment means more than just a monthly house payment. It means paying the monthly principal plus interest, property tax, and potentially multiple types of insurance such as hazard insurance, mortgage insurance or homeowners insurance. Go online for resources. There are plenty of informative websites that will give you a good idea of the amount you need to budget. Find a mortgage calculator website that will have current interest rates and down payment amounts for the closest estimates.

Seek a Third Party Perspective

Find someone objective to talk to in regards to your first home purchase. Objective is the key word. You need someone who will look at the numbers and give you an honest, straight answer about your home buying future. It may not be what you want to hear, but it will certainly be what you need to hear.

For example, HUD, or the Department of Housing and Urban Development, will provide counseling and seminars on home buying. To access this information, visit www.hud.gov or call HUD’s interactive voice system at 800-569-4287. Go to a home buying seminar and ask questions or talk to a credit counselor. Make sure the counselor doesn’t work for a lender; otherwise, their perspective and advice will be skewed in their favor and not in your benefit.

Minimize your Debt

Unfortunately, credit card debt, though seemingly necessary these days, will reduce the amount a lender will be willing to loan you. Most lenders want to see a total debt service ratio that is less than 40 percent of your monthly income.

Get Pre-Approved for a Mortgage

Consider becoming pre-qualified for a home mortgage. By doing so, you can ensure a smooth financing process. This shows that you have a financing commitment in place before new home shopping, so you seem more legitimate in the eyes of sellers and builders.

A down payment and qualifying for a mortgage are your main obstacles to the home owning process. Pre-approval gets one of those out of the way. Some builders may offer financial incentives or favorable financing for those who are pre-approved. You also become more attractive to sellers, and you can make an initial offer more quickly. How disappointing would it be to find the home of your dreams only to be beaten to the punch because you weren’t pre-approved?

After taking these steps to get your financing in order, finding your first home will be much more enjoyable. For more information to help ease the first-time home buying stress, visit nahb.org/forconsumers.

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