Buying a house for the first time is both exciting and stressful. Taking the leap into homeownership is a big decision, one that requires careful consideration of the pros and cons. But we’ve got you covered with these first-time homebuyer tips. Before you make an offer on a property, ask yourself these eight key questions.
1. How Much Can I Afford?
This is one of the first things to ask yourself when buying a house for the first time. To identify your budget, take a hard look at your personal finances. Assessing your income, monthly expenses, credit rating and debt will help you figure out how much you can realistically afford. Our house calculator can also help you determine the mortgage you qualify for.
Here are the financial aspects to consider as a first-time home buyer:
If your income was reduced, would you be able to make your house payment and still cover other expenses?
Owning a home often brings added monthly expenses, both expected and unexpected. Before you purchase your new home, look at your spending and add up your regular monthly expenses like phone, food, transportation, utilities and dependent care. It’s important to include insurance premiums (on auto, medical, life and any other policies you may have) when buying a house for the first time.
Be sure to consider the amount of your other debt, such as from school loans, auto loans and credit cards.
Your credit score is a major factor that lenders consider during the approval process. It’s also important when determining the interest rate of your loan. Consumers with a high credit score often receive lower interest rates. To check for accuracy, federal law allows you to receive a free annual credit report from all three credit reporting agencies. Bankrate.com suggests checking your credit report a full year in advance of purchasing a home to allow yourself time to improve, if needed.
Your down payment affects how much you have to borrow. A larger down payment means a lower monthly mortgage payment. Plus, if you can put at least 20 percent down, you won’t be required to purchase mortgage insurance.
2. How Much Will Property Taxes Cost?
First-time homebuyers are often shocked at the cost of property taxes. Before purchasing a home for the first time, ask what the estimated taxes will be on the property. And do your research ahead of time so you aren’t surprised by any rate increases.
3. What Other Expenses Should I Expect When Buying a House for the First Time?
Depending on where you live and the type of property you purchase, there will likely be upfront costs to maintain, furnish and secure your new home, including:
Be prepared to buy household items like a snow blower, lawnmower, sprinkler system and other tools.
If you’re moving from an apartment or a smaller home, you may need to buy more furniture for your new, larger space.
Whether you’re buying a new house without appliances or you need to update existing ones, these types of purchases can increase your initial costs of homeownership significantly.
No matter if you’re moving across town or across the country, always calculate the expenses of moving — renting a truck, hiring movers, buying boxes and more. These costs are often more than expected.
Homeowner’s Association (HOA) Fees
Ask your realtor if there are HOA fees tied to the property you want to buy.
The costs to close can add up quickly. Closing fees may include home inspection, realtor/lawyer fees, title search, pest inspection, appraisal, home warranty and loan origination. Your lender may also require you to set up an escrow account to pay for ongoing property expenses.
4. Do I Have an Emergency Fund?
In contrast to renting, homeownership means you’re responsible for making repairs, updates and improvements. And any repair, major or minor, may leave you strapped for cash. Set aside an emergency fund for any unexpected expenses.
5. How Long Do I Plan to Stay in the Home?
It’s important to consider all factors — relocating for work, expanding your family, getting married — that may cause you to move. It generally takes five years or more to break even on the costs of buying, owning and selling a home. Thinking about how long you’ll be in the home will also help you settle on a neighborhood and the size of house you’ll need.
6. Can I Still Afford to Save as a Homeowner?
Of all the questions to ask yourself when buying a home for the first time, this is the one that most people forget. It’s easier to think about how much you can spend, but it’s harder to ask how much you can save. How much money do you want to stockpile for retirement, college and vacations? How much do you want to put into personal savings? As you determine how much you can afford on your first home purchase, don’t forget to factor in your savings goals.
7. What Are My Rights as a Borrower?
It’s important to know your rights as a mortgage borrower. The Consumer Financial Protection Bureau’s Know Before You Owe initiative provides borrowers with a better understanding of loan options, helps them shop for the best mortgage and aims to minimize the chances of any surprises before closing.
8. What Type of Insurance Coverage Will I Need?
Protecting things that matter most to you, including your new home, means having the right coverage. As you close on your home, a Farm Bureau agent can work with you to determine which home insurance coverage best fits your needs and budget.