First Time Home Buyer Advice

Post Money Plan

www.postmoneyplan.com How to decide whether to buy or rent: o Duration ? The longer you plan to live in the same place, the more it makes sense to own it ? The shorter you plan to live in a place, the less it makes sense to own it o Costs ? Compare apples to apples between an owning choice and a rental choice ? Compare only money that is being “thrown down the drain” ? Remember that principal payments when owning are not “down the drain” ? those you are trading for more ownership (equity) in your home Things to consider in buying your first home: 1. Plan as much for the long term as possible, but be aware things can change 2. It’s unrealistic for your first home to be your dream home 3. The purchase price you agree to ? actual total cost you’ll pay ? you also have to account for closing costs and fees 4. Lower monthly payment ? lower cost ? you may end up with a higher interest rate and paying more in interest and have less cash to show for it in the end 5. Recurring home ownership costs o Principal o Interest o PMI if down payment < 20% o Home owner’s insurance o Property taxes o HOA fees o Repairs 6. Keep your debt/income ratio well under 33% when considering the amount of mortgage to take on 7. Keep a financial margin of safety and err on the side of conservatism when taking on a mortgage 8. When you buy, you become responsible for all the repairs and maintenance (and to pay for it!) 9. As a renter, you can just call your landlord and have them fix and pay for maintenance 10. Old appliances and equipment that need to be replaced can cost a lot of unexpected money 11. Full inspections are valuable and can tell you about problems 12. A fixer-upper may take more investment and effort than you expected 13. If you have or are going to have kids, the school district where the house is is important 14. Ask as many questions as you can before buying Process to follow as a first-time homebuyer: 1. Define your lifestyle, what you want in a house, and your budget a. Wants: determine your time-horizon, location, size, quality, convenience, cost, etc. b. Consider all of the costs that go into buying a house i. Mortgage down-payment ii. Mortgage principal payments iii. Mortgage interest payments iv. Private Mortgage Insurance (PMI) premiums if down-payment is less than 20% v. Home Owners Association (HOA) fees vi. Property taxes vii. Home owner’s insurance premiums viii. Repairs if stuff is old or broken c. House price budget: make your mortgage payment/income ratio much lower than 33% (ex. $3,000/month income ? monthly mortgage payment needs to be less than $1,000/month) d. Down-payment amount: Put down as much as possible without straining immediate needs (keep 6 months of living expenses in savings) e. Keep your expectations in check 2. Qualify for a loan a. Approach a lender by reaching out to a bank or lending company b. Provide personal information documentation i. Pay stubs ii. Tax returns iii. Bank statements iv. Rental history v. Net Worth c. Get pre-approved for a mortgage loan d. Be careful, remember the bank is not your friend, they’re trying to make money off of you 3. Shop around for houses a. Use real estate websites like zillow.com to search for candidates b. Hire a realtor with expertise and share your desired criteria with them c. Whittle down options to ones worth viewing in person d. Get to where you have at least 3 options that you would be willing to buy (necessity never makes for a good purchase) 4. Make offers and negotiate with sellers a. Bid under the asking price on your first pick b. Ask for ancillary benefits to be thrown in with your purchase (a free inspection, replaced utilities, repairs, etc.) 5. Get the house appraised 6. Get the house inspected 7. Buy home owner’s insurance 8. Close the deal a. Sign off on all the final paperwork b. Obtain the title c. Get the keys Supplemental Resources: Zillow Trulia