Home Buying Guide for Newbies
If this is your first time buying a home, you probably still have a million and one questions about the process, starting with how the hell does anyone else manage to afford a home.
It’s not easy. Student loans, lower wages and rising health care costs make home ownership for many more a pipe dream than a feasible step in the American dream. But with a little planning and patience, you can save enough to buy a home if that’s important to you.
How much to spend on your first home
Some people think that 20 percent is a necessary amount to spend on a home, but the national average is about six to 11 percent. This gives young people more wiggle room than they might expect when it comes to buying a home in certain markets.
Is it possible to get a house with a 2 to 3% discount?
In fact, yes, you can. Well, maybe not two percent. But a 3–3.5 percent drop is a real opportunity, depending on the market you live in, your home, your credit, and a few other factors.
How Much Home Can You Really Afford?
With that said, you should set aside over 3.5% if you can. Between student loans, car loans, credit card debt and now your home payments, your debt-to-income ratio shouldn’t be more than 36 percent, so you’ll want to tidy it all up before you start looking.
What are mortgage points and why are they so important?
Mortgage points are, in fact, an advance payment of interest. For a couple thousand dollars at close, you can lower your mortgage interest rate by a quarter point or so, which will help you save money in the long run.
When to Hire a Mortgage Broker
If you are looking for competitive markets like New York or California, you might consider hiring a mortgage broker to act as an intermediary between you and the lenders. Of course it will cost you.
All the costs you can count on when you first buy a home
There are many unexpected costs associated with buying a home, including various closing fees, utility bills, property taxes, and Homeowners Association fees. Heck, moving to your new home can cost anywhere from hundreds to thousands of dollars. Make sure you have a budget for all of this.
Is it worth investing more than 20% if you can afford it?
While this is a good problem, the fact is that your “extra” money could be better spent elsewhere. Consider investing for the long term or using it to test other financial priorities.