Congratulations on your decision to buy your first home. For millions of Americans, a home is their biggest asset and investment. Instead of throwing money down the drain by renting a house or apartment, you can put that money towards building equity by purchasing a home. Of course, buying your first home is a big decision, and there are several things you need to know about the process. Continue reading for more information.
Buying Your First Home - What You Need to Know
Set Your Budget
One of the biggest mistakes that first-time homebuyers make is spending more than what they can afford. Banks have tightened their lending processes to protect against defaults. Nonetheless, though, some borrowers may still get approved for loans that they cannot easily pay. A good rule of thumb is to spend no more than 30% of your gross, pre-tax revenue on your home. If you earn $100,000 a year before tax, for instance, you should spend no more than $30,000 -- or $2,500 a month -- on your home.
You'll probably be required to make a down payment when buying a home. Down payments vary depending on the lender. The Federal Housing Administration (FHA) offers mortgages with some of the lowest down payments, typically requiring just 3.5% of the loan total on a 30-year fixed-rate mortgage. However, conventional loans that aren't backed by the FHA may require a down payment of up to 20%. Check with multiple banks to see how much they are willing to loan you and what the down payment requirements are. Assuming you have good credit, some lenders may offer a lower required down payment than others.
You'll also find that your monthly mortgage payments are higher than the sale price of the home. This is because lenders typically require homebuyers to pay for homeowner's insurance and property taxes in an escrow payment, which is bundled as part of the monthly payment. Basically, the lender calculates how much the property tax and insurance will be, and they add this amount to the required monthly payments. So, instead of being hit with two massive bills at the beginning of the year -- one for property tax and another for insurance -- you'll pay for them gradually throughout the year as part of your normal monthly mortgage payments.
This article was brought to you by Premier Island Properties - A full service real estate firm serving Hilton Head Island and Bluffton, South Carolina. For more real estate news, information, and interesting facts about the Lowcountry, please visit our website.
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