Advice for the First Time Home Buyer

If you are considering buying your first home, make sure you are prepared for the adventure you have decided to take. With house prices being as low as they are, it is hard not to consider buying a home, but if you have never owned a home before and will be a “first time home buyer,” then please read this. It might just save your from making a big mistake.

Right out of the gate, most people do not know if they can buy a home, meaning does your credit, income and employment qualify you for a home purchase? Your credit score and history is one of the most important things to know and manage if you plan on buying anything that requires a loan. Your credit is also something that you can not just fix in a month or two. Mistakes in payments or planning can take years to correct, so a good knowledge is important. I recommend going to one of the 3 credit bureaus and paying for a tri-merge credit report with your credit score. Once you have done that, spend time on their website and learn about your credit.

Employment history is the easiest component of the mortgage application. There is a 2 year minimum employment history requirement. Which means a borrower has to be in the same career or career path for at least 2 years. No 2 years, no qualification. To be clear, career or career path can be looked at differently by different lenders. Some may consider a customer service job with a telecommunications company the same as a customer service job with a hotel as you being in customer service. Other lenders may look at that as you switching from the telecommunications industry to the hospitality industry. Self-employed and commission borrowers, due to the high risk nature of their income, will have their documentation requirements generally be higher and be looked over more closely.

Having enough money or income is a requirement for having options, both in daily life and for long term planning. This is also very true when it comes to buying a home. My best recommendation is to have a budget and see if you can stick to it for 6 to 12 months before taking the leap into home ownership, and make sure the payment you are planning to make is part of that budget. Note on the payment and budget, make sure to include taxes and insurance and projected utitlity payments. This will limit true payment shock post purchase.

Closing costs, down payment, appraisal, and home inspection are all costs that you will need to plan for. Your appraisal and home inspection will probably be just under $1,000, but the down payment and closing costs will depend on the mortgage that you qualify for and the terms of the purchase. These are best to discuss with a mortgage officer and real estate agent to be more accurate, but there are many online resources that can help at least ballpark these costs for planning purposes.

Debts and your debt to income ratio will have a lot to do with the amount of home you would be able to purchase. As a rough guide, you want your debt to income below 50%, but you can go up to 60% in some cases. This ratio uses debts from your credit report and does not use bills like utilities, cell phone, TV, internet, etc. When planning, be realistic about what you can afford, if you can barely make the payment, you may want to wait or look at less expensive homes.

Costs of ownership can take many by surprise, because these costs are not yours when you rent. Costs such as yard tools, which can add up quickly. Beyond yard tool costs, there is also the additional time that needs to be spent to maintain your yard that can be quite intrusive to having a fun or relaxed weekend. Electricity, natural gas, garbage, and water can be more expensive than renting, if you are in a smaller home and especially if you rent an apartment. Depending on your preference for decor, furnishing can be a very large expense as well.

The biggest items to be prepared for are things that break. You are now the owner and can not call the landlord to come fix it. You can call someone to fix it, but now it is your bill and home repairs can be quite expensive. Just be prepared and do not say you were not warned.

Want to find out more about first time home buyer programs, visit our site on how to choose the best home owners insurance prices for your needs.

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