For most people, the biggest and most important purchase they will ever make is their home. Besides being your very own place to live, owning property comes with a ton of other possible advantages like potentially accruing rental income as well as gaining tax incentives.
Purchasing property is also considered a safe place to park your money in most stable countries. If you’re a first-time home buyer, you will have many questions on how to make your dream a reality.
The greatest hurdle can often be just getting enough money together to make the move towards home ownership. Up next we’ve compiled a great list of financial tips you need to know so you can get into that house fast.
Get Out Of Debt
Among the most important things you can do is pay off your debt, especially your credit card debt. This will help increase your credit score and can impact the mortgage for which you are eligible.
It might sound like an unnecessary move if your credit score is good, but paying off debt also means that there will be less things to juggle and you’ll be able to focus on making your mortgage payments.
Clean Up Your Credit Score
Cleaning up your credit score is critical before applying for a mortgage. Start by getting a copy of your credit report from a credit reporting agency – the two major ones are Equifax and Experian. The higher your credit score, the better mortgage rate you will get.
Make sure you pay off any debts past due or in collections. The score isn’t going to bounce back that quickly so for the next year focus on paying your creditors on time. It will lead to raising your ranking.
This will help to reduce your debt-to-revenue ratio. When you plan to close individual credit cards, make sure that the oldest ones are left intact, even though you never use it.
Pay Attention to the Market
When you get ready to buy a home, pay attention to the demand in the region you want to purchase over the next year. This will help you understand what homes are selling at before you start shopping, and what to expect.
Often, districts of research schools and other considerations should be present in some regions. While you might not have kids now, in the future (especially if you stay at home for at least five years), issues like school districts and playgrounds may be more important than you initially thought.
Save Up For a Down Payment
Saving up for a down payment can help you prove to yourself you are ready to buy a home. It’ll certainly also be a must to apply for a mortgage. Note, the bigger the down payment, the less you’ll spend in the long run.
And remember that you should be able to have access to those funds easily when you are ready to buy a home. So save the money in a place that will give you access to liquid cash instead of saving your money in a form where you might not be able to access it easily like in the unpredictable stock market.
Consider Budgeting Maintenance of Your House
You should spend 1 percent of your home’s value on maintenance expenses on average.
For example, you can expect maintenance costs of approximately $1,750 per year for a $175,000 house. That doesn’t mean you will incur this cost every year, however. Some years you can spend more than others on maintenance costs.
Other considerations include the age of your home and its geographical location.
Consider Mortgage Insurance
When your mortgage is $175,000 for example, your down payment is $17,500 to $35,000. When you make a payment of less than 20 percent, some lenders may require you to buy private mortgage insurance ( PMI) to protect yourself from default on loans.
PMI costs around 1 – 5 percent of your total mortgage on average. For a mortgage of $175,000, the PMI will cost between $875 per year to $1,750 per year. Usually, lenders mandate that you hold the insurance for at least two years.
If your home equity is 20 percent or more, you will drop the insurance after five years. Lender requirements may vary, so take comparison shopping into consideration.
The last thing you should do is set up a new budget and start living on that budget to get ready for how you will spend in your new home. Keep in mind the added expenses of owning a home such as higher electricity charges, cost of repair and repairs, and any fees that you pay for the mortgage.