Deciding to purchase your first home is an exciting time. It also means some work on the future homeowners’ part. Before you begin looking at houses, it is a good idea to have your financials in good shape. Here are some things to look out for:
Start with your take-home pay. It is recommended that you allocate 28% of your joint net wages to cover the monthly mortgage payment. Overall debt, which includes car loans, credit cards, utilities, etc., should be at 43% or under. That will leave enough money to live on, plus a bit extra to take care of emergencies, like an unexpected car repair or accident.
When you have finished a budget based on current expenses, complete a second one based on the house you would like to buy. Contact your insurance agent to get an estimate of the new premium amount. See if there are any additional concerns like location in a flood plain or an earthquake zone. Most online home listings include the annual taxes. It is also recommended that 1% to 2% of the value of the home be put aside to cover maintenance and repairs. If you are looking at a “fixer-upper,” that amount should increase. Even smaller, one-time purchases like a lawn mower and basic tool kit can add up. Many people who work long hours or travel prefer to outsource lawn maintenance.
There are also home warranty policies to cover repairs of specific systems like HVAC or appliances like a water heater. If you consider these things, you need to weigh the amount of the fees versus what a repair person and/or new appliance might cost.
It is very likely that any accumulated savings will be applied toward the down payment, closing costs and incidentals. The more money you can apply to the down payment, the lower the monthly mortgage payments. As soon as possible, restart your savings program. It is always recommended that you have the equivalent of six months of mortgage payments in reserve in case of a serious illness, loss of employment, or other issues.
Reviewing the budget you started with, look for ways to reduce expenses and to maximize your investments. Some people take on a part-time job just to maximize their savings or to pay down their credit card debt.
When you first begin to discuss buying a house, look at your credit report. Clear up any errors and improve your score as much as possible.
Contact your mortgage banker. They will help you with any questions you have and develop the documents to pre-qualify you for a loan. This serves two purposes. First, it lets you know how much you have to spend. Second, when you find your property, it will expedite the purchase process.
None of this should feel overwhelming. If you need help, have questions, or are ready to house shop, contact Dave Kevelighan, a mortgage professional near you. He or a member of his staff have the experience to help you with your home buying experience.