Money Matters: Things to Know Before Buying a House
Not only is buying your first house a major milestone, it's also one of the biggest investments you'll ever make.
Figure Out Preliminary Finances
Even though a down payment is helpful to reduce the amount that you need to borrow, it's not necessarily required for first-time buyers. Ask mortgage lenders about programs that allow you to buy a home without a down payment.
However, you will need to have enough money to make a monthly mortgage payment.
If you're going from renting to buying, be aware that what you can afford for rent may not be the same as what you can afford for a mortgage. You need to include the cost of homeowners insurance, property taxes and perhaps homeowners association fees.
You Don't Have to Max Out Your Loan
When you pre-qualify, mortgage lenders will give you information on how much you can afford if you apply with them. Pre-qualification is a look at your basic financial information, including debt-to-income ratio and credit rating. What lenders don't have is a list of your monthly expenses, such as food, gas and savings, so know your monthly limit.
Keep in mind that just because you qualify for a certain amount, doesn't mean you have to apply for that amount. It may be exciting to think about buying a house you thought was out of your reach, but this is why having a budget before you meet with lenders will keep your finances in check.
Don't Forget About Additional Fees
Two other expenses to consider before you can finalize your home purchase are earnest money and closing costs.
When you submit an offer on a house, you pay earnest money as proof that you are serious about buying the house. Earnest money helps protect the seller's interest. Your real estate agent will help coordinate this transaction. If you back out of the sale, the earnest money goes to the seller, but if you buy the house, the earnest money is applied to your purchase.
Ask your mortgage lender about closing costs. That can be around 2 to 5 percent of the purchase price, but you might be able to negotiate to have the seller cover the costs. It usually means that the seller raises the purchase price, but it allows first-time buyers to get into a house with less money up front.
Be Able to Maintain the Property
When you own a home, calling the landlord when the hot water isn't working is no longer an option. You're responsible for any repairs or updates your home needs, and you want to keep everything in good working order to maintain the property value. It's important to be aware of your housing costs beyond your mortgage payment so you can be prepared financially.