Buying your first home can be a huge financial decision that could impact you for the rest of your life. The amount of time and money that you will invest in your home over the next few decades will affect your credit, your financial freedom, and your quality of life. That’s why making a financial decision of this size comes with so much pressure. Do not worry thought! At Gavish Real Estate we’ve put together a list of smart financial decisions for first-time home buyers. Follow these tips and you’ll be well on your way to making the biggest purchase of your life so far!
Getting a loan for your first home can be one of the toughest challenges you’ll face. It’s important to go to several different lenders to make sure that you get the best possible terms for a loan. Get all of your financial documents together and take the time to meet with at least 3 different lenders. You can use this to your advantage by seeing which lender is willing to give you the best interest rates and overall deal.
While it may be incredibly tempting to take out a loan for the full amount, you should look at this amount and use only as much as you feel comfortable repaying over the term of your loan. Just because you are approved for a high amount doesn’t mean that it makes a lot of financial sense to use the whole loan. Purchasing a smaller home than what you can afford is a smart way to save on everything from your monthly payment to the cost of utilities.
Although a 20% down payment is not required for getting a loan to purchase your home, you can save a lot by coming in with a higher down payment. In most cases, a 20% down payment can help you avoid the added cost of Private Mortgage Insurance (PMI). Private Mortgage Insurance can help you secure a loan, but it will also add to your monthly expenses.
When you take out a mortgage, you will usually be presented with the option of a 15-year term and a 30-year term. Each term has its own benefits and drawbacks. For instance, a 30-year term will have a lower monthly payment than a 15-year term. The drawback is that over those extra 15 years, you will end up paying more in interest on your loan.
The best thing that you could do for your finances is to pay off the loan in 15-years. Yes, your monthly payment will be higher, but you will see that less of your payment goes towards interest and more goes into the equity of your home.
If you don’t have a lot of cash on hand for a large downpayment, you may have a hard time securing a conventional loan. Luckily, you have some options. FHA (Federal Housing Administration), VA (Veterans Affairs), and USDA (United StatesDepartmentt of Agriculture) all offer federally insured loans. These loans are great for helping you secure loans if you have low credit, a low downpayment, and meet their loan requirements.