While learning how to view homes effectively, write a great offer, and deal with inspection issues are some very important parts of the buying process, the financial issues surrounding a home purchase are often where buyers make the most painful mistakes. First-time home buyers who want to enjoy their first ownership experience with a healthier bank account will want to pay attention to these four financially smart tips.
Select from homes in an easily affordable price range
Since most first-time homebuyers are also in the early stages of beginning relationships, families, and careers, purchasing an easily affordable home should be the first goal.
Buying a home with a purchase price that fits comfortably into your plan is important, but it is equally important to make sure that the other costs involved in living in the home will also be affordable. Doing your research to make sure that the other costs, including heating and cooling, utilities, home insurance, real estate taxes, and basic maintenance are also affordable will help ensure that you are financially, as well as physically, comfortable in the home you purchase.
Consider a 15-year repayment term
The difference in the repayment amount for a 15-year mortgage versus one that is repaid over a 30-year term is staggering, yet many homebuyers may not realize just how much money is involved. In addition to paying half as many years of amortized interest payments, lenders typically offer a cheaper interest rate on the shorter-term home loans.
For example, a four percent interest rate home loan in the amount of $300k with a 30-year repayment term will add $215,609 dollars to the total cost. In contrast, the same home loan amount at the lower rate of 3.25 percent amortized for just 15 years will cost almost two-thirds less over the term of the loan.
Have a large down payment
In addition to offering you the benefits of an immediate, strong ownership position in your home, a large down payment of twenty percent or more will also keep you from paying expensive private mortgage interest on your home. PMI costs are based on a percentage of the actual loan amount and can add hundreds of dollars to your regular monthly principal and interest payment.
Save for estimated closing and moving costs
Many first-time homebuyers take advantage of offers to roll their closing costs into the loan amount. But doing this means paying interest on that amount. Buyers who have been proactive about saving money to cover their closing costs, as well as their moving expenses will not need to borrow more than the purchase price and can enjoy a lower payment and less financial stress as a new homeowner.
To learn even more smart financial tips to use when you are planning to purchase a first home, take time to have a frank conversation with a real estate agent who specializes in working with first-time buyers.