Before you think about buying your first home, you should examine your finances to determine mortgage affordability and repayment structure of the loan. You should make a good financial assessment of your income and expenses and get a clear picture of your disposable income.
When mortgage rates are low and there is a surplus of homes for sale, you should start contacting real estate agents in the area in which you are interested. A surplus in inventory of homes can give the buyer and edge in obtaining a good price and terms. These real estate agents are specialists in their chosen areas and know the local market very well. A specialist can give you better service than one who operates everywhere. A specialist knows the niche market home prices and have current information about all the properties in that neighborhood. You want to avoid having to drive all over the city or town and waste time and fuel to find a home.
One rule to follow as a potential home buyer is to find the worst home in the best neighborhood. There is merit to this rule. After you buy it and put in some sweat equity or hard cash to improve it, you would be surprised how valuable this home will become. It would appreciate in value more rapidly than a similar one in a rundown neighborhood.
Besides being concerned about mortgage affordability, there are other expenses to consider when shopping for a home. You have to be careful not to get carried away emotionally and deposit a large sum to purchase the home and not leave money for daily living expenses and other expenditures like home maintenance and insurances, car payments, vacations, lifestyle, hobbies, savings and other items.
One of the key issues with purchasing a home is mortgage qualification and the terms you will have to meet. Depending on your qualified amount you may elect to take a longer period to pay off the mortgage or a shorter one. If it appears that you will not have an increase in income in the coming years, then you may decide on a longer term. But, if you are confident that you will be earning more money, then you may elect to take a shorter term.
When you take a longer term, say 30 years, your monthly mortgage payments would be smaller. However, if you take the shorter term, say 15 years, your monthly mortgage payments would be higher. You should ensure as part of your agreement that you are allowed to pay off the loan at any time with no prepayment penalties. This clause comes in handy if you have a financial windfall like getting an inheritance or winning the state lottery.
Another main item is to obtain Private Mortgage Insurance (PMI). The banks offer this at their rate but you may be able to get better rates if you shop around. But, if you are dealing with a bank, they may not want to conduct business with you if you do not take their offering. Do not forget to set aside money for maintenance of your home. Things do break and you need to maintain the home and pay the utilities etc. If it is an older home, it may need more maintenance than a newer one, so plan ahead carefully.
One good rule of thumb is to have enough money saved up for six months for mortgage payments and maintenance costs as a reserve for emergencies that may develop while owning the home
When you are a home owner, you get tax deductions for mortgage payments and other related expenses. This lowers your tax bracket and therefore you pay less Federal taxes. In effect, the Federal Government encourages you to become a home owner by giving you this tax advantage.
One of the best investment you can make is to own your own home. But, before you do, be sure to investigate all the implications financially and emotionally before you make this investment.
If your mortgage affordability concerns are met and you purchase your first home please accept my congratulations. Now, you can enjoy your new home for many years to come.