A home is a place to entertain friends, raise your family, and build long-lasting memories. Ensure you're prepared to make one of the biggest financial purchases of your life by following these tips.
Save, Save, Save
1. Real estate website Realtor.com recommended saving enough for a down payment as the first step to home-ownership. Buyers should save 20 percent of the home's price for a down payment. Saving 20 percent helps buyers pay less in interest and fees, according to Experian, the consumer credit reporting agency. It also increases your chances of being approved for a mortgage, results in a lower mortgage rate, and helps you avoid paying mortgage insurance.
When you start to save for the down payment, calculate what your housing budget will be.
Dave Ramsey, an author and radio show host who focuses on financial issues, urges prospective buyers to allot 25 percent of their monthly take-home pay for housing costs, including taxes, insurance, HOA fees, and more. Buyers will also need to account for closing costs, which can be three to four percent of the purchase price of a home.
Do Your Homework
2. It is imperative that you find the right neighborhood for you to live in. A property is more likely to appreciate in value if it is used as a longer-term investment. Consequently, if you do not like the area, you will likely have to be there until you are able to sell your home and could lose money if you are motivated to leave quickly. In the internet age, there are endless opportunities to research your future home and find the perfect city for you.
According to Realtor.com, NeighborhoodScout is a resource to look up information including the median home price, crime rates, and how long it will take you to commute to work. It can also tell you whether an area has a large percentage of adults, members of the military, and employment industry in the areas, as well as information about crime in the area, and public school rankings.
The National Association of Realtors also offers statistics on national, regional, and metro-market housing data. This includes information about existing home sales, the housing affordability index, which measures whether a typical family can earn enough income to qualify for a loan on a typical home in the area and a housing shortage tracker.
Real estate company Rocket Homes recommended reviewing the National Sex Offender Public Website for information about sex offenders living in the area. They also suggested going to the area and talking with neighbors for an insider’s input on the area. Prospective buyers should also look at the nearby chamber of commerce websites and search online to get a sense of activities and events in the area.
Select a Loan and Get Pre-Approved
3. Once you're financially prepared and know what you want, it's time to research your financing options.
According to the Bank of America website, common mortgage types include a fixed-rate mortgage, adjustable-rate mortgage, Federal Housing Administration (FHA) loans, or Department of Veterans Affairs (VA) loans. With a fixed-rate mortgage, the mortgage interest rate remains the same for the entirety of the loan. Bank of America recommended a fixed-rate mortgage for home-owners who plan on owning the property for a long time, if interest rates are predicted to rise in the next few years, and for those who prefer pricing stability.
For an adjustable-rate mortgage, the interest rate will change during the life of the loan. This type of mortgage has a fixed rate for a select number of years, depending on the loan, and a variable rate after the fixed-rate period ends.
Adjustable-rate mortgages can benefit those who plan to move before the fixed-rate period, buyers interested in a lower monthly payment than a fixed-rate mortgage offers, and if interest rates are expected to decrease in the future, according to Bank of America. FHA loans are government-issued loans for homebuyers with limited income. VA loans are offered to current or former military members. With a VA loan, a home buyer can purchase a home with a low-interest rate, and, in some cases, without a down payment or mortgage insurance, according to the VA.
Happy house-hunting! Remember, buying a home is often one of the largest purchasers a person will make. It is important to thoroughly research and financially prepare for this purchase to help you find your dream home.