A home is not only one of the biggest purchase you will ever make but one of the most overwhelming purchase especially to young adults buying their first home. Rushing through this multi-step process; deciding how much you can afford, fixing errors on your credit and saving the down payment can be quite costly and daunting.
However, with some planning years before you even think of hiring a real estate agent can get you on the road to home ownership. The following steps to buying your first home will help you prepare financially for this important purchase.
- Determine how much home you can afford.
The initial step towards home ownership is introspection. You should take a hard and long look at your finances and determine your plans in the next years and how much you can comfortably afford to repay.
Begin with your monthly after tax income including that of your spouse if applicable, add any regular income from assets and any other income you may have. All this adds up to your total monthly income. The next step is to determine your monthly expenditure excluding your rent since you will not incur it once you purchase your own house. Subtract all other expenses and the number you get is what you can afford to repay every month on mortgage loan.
You should also consider your career, whether your salary is likely to increase among other family considerations like if your spouse may need time off in order to take care of the kids which can significantly reduce the total income.
- Boost your credit.
Your credit score plays an important role when applying for a mortgage loan. A high score, one that is above 740 will help you secure better interest rates while a low credit score attracts higher interest rates.
More often than not, your credit report may have blemishes due to the missed credit card or student loan payment hence the need to check it early in order to have enough time to correct any issues and avoid having to handle a bunch of mistakes on the credit report when trying to get approved for a mortgage loan.
If you notice any problem, you should contact the credit bureau directly to have it fixed.
- Consider where you want to live.
Buying a home where you live now is not a good idea since it will limit your freedom and you are still exploring your career path. You should buy a home in an area where you will not mind sticking around for a while According to expert advice, you plan to stay in your new home for at least seven years from the day of purchase as you will spend lots of money moving into the home and to get out is equally expensive.
How to decide the best area to settle down in
Consider the job market in the area as well as the cost of living. Other factors that will affect your quality of life include the city demographics, accessibility of the public transportation as well as the social scene.
In case the homes in your preferred neighborhood is beyond your price range, you can take some more time to save up or you can reduce the type of home you are looking for or even consider searching in a more affordable neighborhood.
- Start saving for the down payment
Besides boosting your credit score, you should also begin to save for the down payment which should be at least 20 per cent of the home price meaning when buying a house worth £220,000, you will need to save at least £44,000. The more you put as down payment, the better the mortgage you will be offered.
A down payment that is more than 20 per cent of the home price also saves you from paying PMI (Private mortgage insurance) which protects the lender in case you fail to pay the loan. It also protects the lender from losing money when you end up in foreclosure.
- Shop for a home loan
Educate yourself on the different home loans available in the market before taking the plunge. The interest rates charged on the loan determines its total cost as well as the size of the monthly payment. Therefore, it makes sense to shop around for a loan with the lowest interest rates that you qualify.
Before you shop, determine the type of mortgage loan that suits you best as well as the term you need so that you can compare the lenders fairly. The types of mortgage loans include:
1. Fixed rate mortgage loan
This is a conventional loan with fixed interest rates for the entire term. It allows you to spread the cost over time while making fixed payments every month. This type of loan is ideal for buyers with predictable income and who intend to stay in the home for a long period.
2. Adjustable-rate mortgage
The interests of an adjustable rate mortgage loan changes periodically usually depending on the index. This type of loan is recommended for buyers who anticipate an incline in interest rates.
3. FHA (Federal Housing Administration)
Most first time home buyers qualify for FHA loans. These loans have more flexible borrowing requirements and low down payments, more flexible income requirements and reasonable credit expectations.
However, a home purchased with FHA loans should be the primary home of the borrower and should not be a rental or investment property.
- Home inspection
Before making an offer to a home, you should have it inspected for any faults to ensure that it is in perfect condition.
Depending on the type of property, there are different inspections that should be made including:
· Pest inspection
· Building inspection
· Strata inspection
· Electrical inspection
· Property or land survey
It is important that you find out any problems like shifting foundation, dampness, faulty wiring or plumbing issues before paying for the home.
At A B Property’s Auckland property inspector, we have many years of experience in home inspection where we conduct pre purchase house inspection and report in 24 hours to allow you make an offer in confidence.
· A thorough and detailed inspection reports
· Moisture testing
· An estimated cost to repair the identified problems
· Meth testing by an external company if necessary
To book a pre-purchase house inspection in Auckland including West Shore and the North, contact us now before making an offer on your preferred home.
- Making the offer
After the home inspection, if you are satisfied with the report, you can now make the offer. However, remain leery when approaching the price negotiations and do not be inflexible after all, you want to purchase the property and would not want someone to beat you in the bid.
After agreeing on the price, sign the contract after reading it carefully to avoid any legal surprises after making the purchase. You can get a lawyer to explain to you any terms that you do not understand or make any changes that you may need.