You may have been a whiz with your finances while growing up. You may have set budgets, worked on a savings plan, started a retirement fund, and followed all of the advice you got about managing money.
And then you go to buy your first home.
All of a sudden, your ideas about money get thrown for a loop. There are settlement costs, brokerage fees, agent fees, bank rates, term mortgages, balloon payments, and third-party appraisals to now consider and understand.
If you’re a first-time home buyer, these new and foreign terms can really set you back, and if you’re not cautious, a lack of knowledge could be disastrous. Here are the finance basics every first time home buyer should know before starting off on the incredible journey of buying a home.
When you go to the bank, remember that you’re entering a business. The bank staff are all prepped to sell their products to the customer—just like at any business. They want to sell you a mortgage, so they shouldn’t be your only source of information about a sound financial decision.
The amount they will allow you to borrow is the upper limit of your ability to repay that loan. It’s best to do some research and discuss your options with a financial advisor about acceptable limits of what you can afford to repay.
The best option is to make a larger down payment on your first home to avoid needing to seek the bank’s help. The average down payment is 11% in Redding, but a good rule of thumb is to aim for 20% to reduce the mortgage amount the bank will need to lend you.
No matter what state your first home is in, it is now your home. That means that when you need the landlord to fix something that’s broken down, you’ll have to look in the mirror, because that person is you.
Owning a home comes with the responsibility of keeping it and maintaining it in good shape. If you don’t set aside some cash for regular maintenance and unexpected emergencies, you could face real hardship.
Also, you might have saved a bundle of money when you purchased the home because it was a “fixer-upper.” Your budget for renovating the house can, and does, blow out to more than you had intended if that’s what you’re aiming to do. These sorts of homes can become real money pits if you’re not careful with the money you’ve set aside to renovate the home.
Believe us; your first home is rarely going to be your last. That means that sometime in the future, you’re going to sell your home, and you’ll probably want to be upsizing to a home for a growing family. When you sell your home, you’ll want to know that the resale value is going to go up, and not down.
While it’s impossible to predict how the market will perform exactly, you can have a good indication from the history of the neighborhood over the previous 5 years. When you’re a first time home buyer, take the time to investigate the resale value of the homes in the area.
Consider some of these options in resale value estimates: Proximity to schools, industrial developments, land surveys, future neighborhood plans, renovations, and landscaping. They all play a part in how much money you’ll get when you list the house in the future.
Every real estate agent is willing to show you through a few “good” deals that you would be perfect for. They might be foreclosures or bank-repossessed homes that have extremely low price tags compared to other property in the neighborhood.
But just because it has a good price tag doesn’t mean that’s the full cost of the home. You could be on the hook for months just to try and get the offer through to the right party. Renovations could exceed your estimates, and there could be unanticipated repairs. You shouldn’t avoid all of these homes, and you could score great deals if you do the research, and get help along the way.
The best advice for any first-time home buyer is to keep your eyes wide open. If you go in to the experience without any pre-conceived notions about your finances, you can keep yourself from harm and financial ruin. By knowing these basics, you can set yourself up for a good experience for your first time buying a home.
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