One of the largest purchases you can make throughout your life is a new home. Going into the housing market can be particularly intimidating for a first-time homebuyer nervous about their finances. However, knowledge and preparation are two of the most effective ways to ease the financial burden of a new home. Here are a few tips that will significantly help your personal finances as you prepare to buy a home.
Know Your Net Worth
Just like with financial planning, you should always start by estimating your total net worth. Create a document with two columns labeled “Assets” and “Liabilities,” respectively. In the Assets column, list your valuable property, including your vehicle, house, current bank account, savings, stocks, and bonds. In the Liabilities column, list any debts you may have, including credit card debt, student loans, house and car payments, and the cost of insurance. Find the totals of both columns, then subtract the Liabilities from the Assets to find your estimated net worth. Knowing your net worth will help you understand how much money you have to work with once you have entered the housing market. By picking a house at or under your means, you will begin to be able to live a financially aware life. Run the calculations before searching to see if owning your own home is an economically sound choice at the present moment.
Reduce Debt and Adjust Your Expectations
When you are trying to get approved for a loan, there are several strategies that will help you secure the best loan possible. Begin by avoiding any large purchases three to six months before you will be buying your new home. Reliability is critical to lenders, and unusually large expenses, as well as the opening of new credit cards or the accumulation of debt, can lessen the chances that you’ll get a good deal, even if it appears that the purchase will benefit your credit score in the short term. Instead of spending, try to reduce your debt as much as possible. This will show lenders you not only have the ability to pay back your loans but also that you are the kind of person who will choose to pay them back without being pressured.
You’ll also want to get pre-approved for your loan, not just pre-qualified. While anybody can be pre-qualified, being pre-approved means that your lender has already looked at your financial information and has decided precisely how much they are willing to lend you. Just like with your net worth, this will allow you to make a wise choice about the cost of your house and whether it is currently within your budget.
Choose a House That Fits Your Long-Term Budget
Once you have established your budget and figured out how much your lender is willing to loan, choose your house wisely. Picking the largest and best house you can afford is not always the wisest choice. Remember that there are many additional costs in addition to the base purchase price, so buying a $50,000 house when you’ve been loaned $50,000 will likely add to your debt after a short period. Be aware you’ll have to pay for repairs, maintenance, and potential property taxes. You should also hire a surveyor to check your borders and an inspector to make sure your house is in good condition.
Consider a HUD home
To save money, you may be interested in a HUD home, which is a foreclosed home paid off by the Federal Housing Administration and transferred to the Department of Housing and Urban Development (HUD), which sells the property for a price that accounts for necessary repairs. This can help you save money on the price of the house, but it also helps in other ways because HUD pays up to 5 percent of your overall closing costs. HUD homes can be a particularly good idea for homebuyers interested in a fixer-upper.
Above all, take your time -- homebuying should not be rushed. After you have planned and charted out all the possibilities, you are finally ready to make an offer on the property of your dreams.
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