First-Time Home Buyers: What You Need to Know Before Starting Your Home Search

With historically low interest rates persevering and prices starting to creep back up, more and more renters are grappling with the question of whether to buy now or keep renting.  I can confidently tell you, yes! Now is a very opportune time to purchase your first home.

First-time home buyers across the country have taken advantage of today’s market conditions to go from renter to homeowner. That said, the ability to move into homeownership is very dependent upon the overall health of your finances. Buying a home not only takes having the necessary cash on hand for the deposit and closing costs, but also the financial wherewithal to convince a bank to lend you 80% or more of the purchase price in the form of a long-term mortgage.

Here are some other important points to be aware of before embarking on a home purchase:

1. Having good credit is all important, so put out the bucks to Fair Isaacs’ myFICO.com to get your current scores (about $16 each for reports from Equifax and TransUnion, another $15 at Experian.com). Don’t be surprised if the scores differ somewhat, and check them carefully for errors. Remember that errors must be reported to and corrected by the agencies themselves, which could take weeks or months.

2. Know what you can afford. In all, your monthly home payments should not exceed 36% of your gross monthly income, less if you have debt. Getting pre-approved by a lender should be your signal to start home shopping.

3. Check your cash situation. Whether you are aiming to amass 20% of the home’s price for a conventional loan, or a smaller downpayment for a loan from Fannie Mae, Freddie Mac, FHA or the Department of Veteran’s Affairs, you will also need to cover fees and closing costs.  First-time buyers may augment their cash by borrowing from an IRA or getting a cash gift from parents, but check with a financial advisor for amounts and tax consequences.

4. And speaking of tax consequences, remember that homeowners, unlike renters, must pay property taxes each year – and pay for any needed repairs or upgrades. Be sure to leave yourself a little financial wiggle room in order to meet these expected – and sometimes unexpected – expenses.

If you would like more information about preparing to buy a home, please e-mail me. I also invite you to forward this email to anyone else who might soon be joining the ranks of homeowner!