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As you seek to optimize your financial plan, one priority that may be on your mind is buying your first home. Why is it a smart long-term financial move? When should you make that leap? How will you make it happen? These are all good questions to ask yourself if you are thinking about becoming a first-time buyer—whether it’s in the near future or still a few years away.
Let’s take a look at 3 key questions to ask:
Buying Your First Home – Why Should I Buy a Home?
There are many reasons why you might want to buy your first home. First, there are clear financial advantages to being a homeowner. You get some significant tax breaks, such as being able to write off your mortgage interest and certain closing costs. Being a renter offers none of these tax advantages. Plus, you are just paying your rent to someone else, whereas mortgage payments are going toward the ownership of your property. Then, you can also benefit from the long-term financial growth.
Real estate is generally one of the safest investments out there. Homes and land are always in demand, so properties will typically appreciate significantly over time. You might buy a starter house or condo now or $300,000 with a 30-year fixed-rate mortgage. You will make the same mortgage payments month after month, even as your income might go up. The property then might be worth $500,000 in 5-10 years when you are ready to sell and move up to a bigger home. That’s $200,000 in equity you can apply toward your next real estate purchase!
Buying Your First Home – When Should I Buy a Home?
“When to buy your first home will depend on a number of factors,” says Alvaro Moreira, President of Moreira Team | MortgageRight in Atlanta, GA. “Not everyone is ready for homeownership. Some may be ready sooner than they realize. Others may want to wait until the time is right.”
There are a few steps you should take if you are thinking about buying a home. First and foremost, you want to get your finances in order. Save up money for a significant down payment. A higher down payment can help you qualify for a much lower mortgage rate. In addition, you should work to pay down other high-interest debts such as credit cards, car loans and student loans. Mortgage lenders will calculate your debt-to-income (DTI) ratio when deciding if you qualify for a home loan.
You’ll want to make sure you have a steady income and a strong employment history before applying for a mortgage loan. Last but certainly not least, you should take all the necessary steps to maximize your credit rating. Your FICO score is another significant factor mortgage lenders will review when determining your loan eligibility and qualified interest rate.
“When you are in a good financial position and the timing feels right, you can then decide when you want to take the leap and buy your first home!” adds Moreira.
How Will I Buy a Home?
Assuming you are ready to buy—both mentally and financially—you will start your home buying process with a mortgage loan application. Talk with multiple mortgage lenders and banks to find someone you are comfortable working with toward your home purchase. Explore different lending options and mortgage loan programs such as FHA loans, VA loans and USDA loans. You may qualify for a certain type of loan that can be very beneficial for first-time home buyers.
Your primary goal should be to apply for a mortgage loan pre-approval. Talk with your lender about the steps required to apply. This process will help you understand how much home you can truly afford. It will allow you to lock in the lowest possible mortgage rate. It will also give you more bargaining power when making purchase offers. Today’s home sellers want to see a mortgage pre-approval letter with the offer, especially when the buyer is a first-timer.
It is smart to get pre-approved for your mortgage loan before you start searching for properties and making offers.
This covers the why, when, and how for first-time home buyers. The only question left is who is ready to buy their first home? When you take all the necessary steps and make sound real estate decisions, it truly is the first step on the journey toward financial freedom!