From excitement at finding the perfect home to the stress of making an offer, there are a lot of emotions involved in buying a home – especially when it’s your first home! It’s important to remain objective and practical when it comes to certain aspects of the home buying process, however, especially when it comes to financial decisions and budgeting. Here are a few things you should consider when you’re budgeting for your first home:
1. Gather your documents ahead of time. Almost every agent can agree that getting preapproved before searching for your house is crucial. Preapprovals allow you to see how much you qualify for, and can give you an idea of what homes are in your price range so you can start looking. To be pre-approved for your mortgage, you'll need to gather all of the necessary documents: your W-2 form, 2 years of tax records, paystubs, current loan and credit card statements, and the names and addresses of your landlords from the past two years.
2. Find out how much you can afford. Many first time home buyers forget to factor in the total monthly cost of their future home, which can be a major mistake. Don’t forget that there is more to your monthly payments than just the mortgage - taxes, insurance, maintenance costs, and higher utility bills can almost double your monthly housing costs.
3. Figure out your down payment. While you may want to place the full 20% down to avoid paying PMI, emptying your savings to do so can put you in a bad place financially. You should always keep a balance in your savings account for surprise fixes that can be a part of homeownership. Mortgage companies now Offer great programs if you can’t afford the 20% down payment. Check out HUNT Mortgage’s website for more information: HUNTmortgage.com.
4. Budget for closing costs. While considering your home buying Budget, make sure you also consider Closing Costs. Closing costs are typically 2-5% of the total price of the home
5. Be prepared to move quickly. The highly competitive market means you'll have less time to dwell on whether you'd like to place an offer on a home. You will need to be decisive if you find a home you are interested and move quickly to place in an offer. Have a list of things you absolutely need and things you could live without to help weed out homes that aren't for you.
6. Are you willing to go over asking price? With the state of the market, you’ll likely end up in a scenario with multiple offers. Make sure you put forth your strongest offer and set a limit of how much (if any) you’re willing to go over the asking price. Don’t pay more than you can afford. Your agent can help you compile your best offer and will do negotiations for you.
These are only a few of the tips to make sure you are financially prepared for the major investment that is your first home. Your agent can help connect you with a mortgage representative who can give you even further insight into the affordability of a home in your budget. Plan and budget carefully and you can have your dream home!