6 Financial Nuggets of Truth for First-Time Homebuyers

Becoming a first-time homebuyer is not only exciting – it’s also liberating. It makes you feel like you finally have your family pointed in the right direction. But in order for you to truly excel, it’s important to understand the financial side of things.

Be an Informed First-Time Homebuyer

The home buying process is stressful for everyone, regardless of how many times you’ve done it before. But first-time buyers face an even bigger challenge. Not only is the process stressful, but they don’t know what to expect.

In order to make sure your home buying process is smooth and productive, we’ve compiled a list of a few things you need to know. Take a look:

  1. Determine Affordability

Affordability is an interesting word in the world of mortgages and loan financing. Banks and lenders will tell you what they think you can afford, but only you can determine what actually makes sense in your budget.

As OnQFinancial explains, “The pre-qualification process is the best way to determine the numbers that are right for you. Early in your search, you can work with a mortgage professional to get prequalified and search for homes within your wants, needs, and budget.”

  1. Find the Best Type of Mortgage

You’ll also need to carefully think about the type of loan product you want to use. If you don’t know what terms like fixed-rate, adjustable-rate, conventional, government-insured, FHA, VA, USDA, and jumbo mean, spend some time studying your options. The more you know, the more likely you’ll find a loan that fits your specific needs.

  1. Determine the Right Down Payment

One of the critical pieces to the puzzle is figuring out how much you want/can afford to pay in the form of a down payment on the house you buy. Generally speaking, most people put down somewhere between 3.5 to 20 percent. Depending on the type of loan, you’ll be told the minimum. However, just because the lender says you only have to put down 5 percent, doesn’t mean you can’t put down more. The larger your down payment, the lower your monthly payments.

  1. Avoid PMI Whenever Possible

If at all possible, you should try to make a 20 percent down payment on your house. Aside from increasing your equity and lowering your monthly payment, the 20 percent down payment helps you avoid private mortgage insurance (PMI). Since PMI costs roughly 1 percent of the loan amount per year, this could save you thousands of dollars annually.

  1. Calculate Closing Costs

The down payment isn’t the only thing you have to cut a check for at the closing table. There are also a number of closing costs and fees. And since they typically add up to between 2 and 5 percent of the total home purchase, you need to have some cash stashed away.

  1. Account for Additional Costs

Finally, be sure you’re prepared for the additional costs that come with home-ownership. Between home insurance, property taxes, maintenance, repairs, and lawn care, there are lots of little expenses to handle over the course of a given year.

Knowledge is Power

Being a first-time homebuyer can be scary and intimidating. There will be times when you’ll feel like you’re in over your head. There will be moments when you’ll be so confused that you’ll think about throwing in the towel and spending the rest of your life renting. However, if you can break through these moments and consume as much knowledge as you possibly can, you’ll be better for it on the back end. Not only will you end up being a homeowner, but you’ll do it in a fiscally smart way that prepares you for the future.

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