One of the most exciting times in a person’s life is when you finally have enough money saved up to buy your first home. So, if this dream has been on hold because you were busy saving money for a down payment, congratulations! By following certain rules and financial tips, you can ensure that the stress of homeownership doesn’t crash down on you after all of your hard work and savings. Here are the financial tips you need to follow when buying your first home.
Get Pre-Approved
An essential financial tip you need to follow when buying your first home is to get pre-approved. This means that you should go and talk to a lender before you even pick out the home of your dreams so they can run the numbers on what it will cost for you to actually purchase this house. This will help ensure that you can actually afford the home that you’re going to purchase so you don’t get stuck with a house that is way outside of your price range.
Keep in mind that there are different interest rates. As the folks at www.emetropolitan.com explain, choosing between a fixed rate and an adjustable rate is an important decision that needs to be made. When choosing a lender for this purpose, make sure that they are reputable and that you are comfortable with their rates. A quick look online can help you find a lender that will meet all of your needs in this area. Or, you could ask a real estate agent who they would recommend.
Use The 20% Down Payment Rule
A financial tip you need to follow is to use the 20% down payment rule when purchasing your home. This means that, in most cases, you should be putting down 20% of the cost of your home when you purchase it. Not only will this help ensure that you won’t have to pay for private mortgage insurance, but it will also help you ensure that you can afford your home comfortably. This is because, when using the 20% down payment rule, you will be able to get an 80/20 loan instead of a more expensive 80/15 or 80/10 loan.
To calculate this properly, you need to add up your monthly income and all of your existing debts (student loans, car payments, credit cards, etc.) and then subtract them from the cost of your home. If this is 20% or more of what your monthly income is, you can definitely make a 20% down payment.
Take On A 30-Year Fixed Mortgage
When it comes to the financial tips you need to follow when buying your home, this is one of the most important ones. When buying a home, always take on a 30-year fixed mortgage instead of an adjustable or interest-only loan. This will help ensure that you have a low monthly payment and that your mortgage will be paid off by the time you retire.
The reasons why adjustable and interest-only mortgages are bad choices for first time home buyers include:
- The monthly payment can be much higher than a 30-year fixed mortgage, which means you’ll end up spending more money each month on your loan.
- You don’t know what the interest rate will do in the future. It could go up significantly, which would mean you’d be forced to pay more each month.
- Adjustable and interest-only mortgages typically have a limit on the amount of money they can help you borrow, if your home is worth more than this amount, you won’t be able to get any extra money for repairs or renovations.
As mentioned above, this is one thing a good lender can help you with. They can help you calculate the monthly payment you would have on a 30-year fixed mortgage so that you can figure out if this is something you would be able to afford or not.
Get Insurance
When it comes to the financial tips you need to follow when buying your home, another important one is getting insurance. It is vital that you carry both homeowners and flood insurance on your home so that everything you have – and everyone in your family – is protected.
Even if you’re living by yourself and think you don’t need flood insurance, you should still get it. That’s because flood insurance will protect your home and possessions even if the damage was caused by a neighbor or someone else using water that overflows.
Another type of insurance to get is fire insurance. If a fire starts in your home and you don’t have insurance, you could end up losing everything. This is why it’s so important to get the right amount of insurance for your home so that you can rest easy knowing that everything will be covered if disaster strikes.
When buying your first home, it’s important to follow the financial tips you need to ensure that you can get a great deal and afford your mortgage. Using the 20% down payment rule, getting a 30-year fixed mortgage, and carrying homeowners and flood insurance will help ensure that you protect yourself while also allowing yourself to enjoy your new home.
