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Buying your first home can be overwhelming. My husband and I bought our first house a couple of months ago at the ripe old ages of 31 and 36, which is on the older end of most first-time home buyers. We waited until we were pretty stable in life and in our finances, and procured a conventional mortgage with no issue. But buying our first home was still a huge educational experience for us.
In a world where I see many of my friends struggling to make their mortgage payment, we set ourselves up with a payment that is less than what we were paying in rent and we are on track to have our mortgage paid off in 15 years or less. We had most of our ducks in a row, and it has made home ownership a blessing instead of a headache.
Save More Money Than You Think You’ll Need
I hear a lot of people talk about saving for a down payment, but you’re going to want more money than your down payment in the bank before you start house shopping. Closing costs can run between 2 and 5% of the purchase price, and you will need to start paying some of those costs early on in the mortgage process.
You also want to think about the potential expenses that come with buying your first home. If the furnace goes out you can’t just call the landlord, so you need to make sure you have a sufficient emergency fund in the bank. Ideally you will be out of debt and have 3-6 months of living expenses in the bank before you buy a house.
What Do They Really Look At To Qualify You For A Mortgage?
A lot of times closing dates are delayed because the mortgage isnt finalized yet. Our mortgage was done less than 3 weeks after we made an offer and literally closed without one hitch. I asked our banker why the process was so seamless when I had heard such horror stories and he said these things helped us:
- We had plenty of money in the bank to not only cover the down payment, but also the closing costs.
- We had very stable employment history.
- We had a good debt to income ratio. If you have tons of debt sitting around the bank is skeptical that you can afford a mortgage payment.
- We were responsive to phone calls and requests for signatures and paperwork. Our banker thanked us profusely that we made it a priority to get things to him as soon as possible, and that we came to his office to sign neccesary documents as soon as possible. He said we wouldnt believe how many people he has to chase around to get paperwork signed.
- We bought a house below the amount we were approved for.
Which leads me to my next point …
Don’t Buy The Maximum House You Are Approved For
Getting pre-approved for a mortgage relieves a lot of stress for both the buyers and sellers, but just because the bank approves you for a certain amount doesn’t mean that is how much house you can afford. I know several people who bought at the top of the amount they were approved for, and they are the same ones struggling to make their mortgage payment or ignoring serious repairs because they can’t afford to make them.
A good rule of thumb, courtesy of Dave Ramsey, is to keep your mortgage payment at 25% of your take home pay on a 15 year mortgage. This leaves you enough breathing room to fund other neccesary components in your budget like retirement, and even house repairs.
Buying Isn’t Cheaper Than Renting
As someone who rented for almost 20 years of my adult life I was often told that I was throwing my money away. Our house payment is indeed less than what we were paying in rent, but if you look at the true cost of home ownership, it’s almost always more expensive than renting.
On top of your mortgage you will also pay taxes and insurance. Our taxes and insurance almost double our mortgage payment, so you want to make sure you have an accurate idea of what these costs will be.
You also need to set aside money every month for house repairs. You will have to put money into your house, there is no two ways about it. Since we moved in we have had a plumbing leak, had to have some outlets rewired, and I am chomping at the bit to replace the flooring in our bathroom. We will eventually need to replace windows, HVAC, and the carpet too. We budget about $200 a month for home repairs, but will increase that amount on months where our income is higher because we have some big expenses coming up.
Set A Realistic Budget And Stick To It
Once you start actually looking at houses it can be easy to get caught up in the excitement. Before you look at any houses sit down and decide what is a realistic purchase price and stick to it. When we were looking the housing market was on fire and houses were selling within hours of being put on the market. It was really tempting to raise our budget to expand the houses we could look at but we didn’t. We stuck to it and sure enough the right house finally came along. This is the biggest purchase you will likely ever make, so don’t reduce it to an impulse buy. You don’t want to end up too house poor to be able to modify the home to suit your needs.
Home ownership has truly been a blessing, but it can be expensive and time consuming. Do your homework before buying your first home to insure that it stays a blessing and doesn’t turn into a huge headache.