Buying your first home can be both exciting and frightening. With the average cost of a home in the United States hovering between $217,600 and $343,300, buying your first home may be the most expensive purchase you've ever made. Knowing and understanding the following items before you make an offer can help ensure that you are making a wise decision.
Know Your Budget
This point is two-fold. You need to know what you are approved to spend. Meet with a loan officer and run through the numbers. Make sure you understand what you need to put down on the home, what the interest rate is, and what your monthly payments will be.
The second half of this is being comfortable with that monthly payment. Banks take income and fixed debt into considerations when running your debt-to-income ratio. Most are looking to see 43 percent or less, meaning your outstanding debt payments are 43 percent or less of your income. If you travel extensively or eat out frequently, those expenses will not be reflected as debt. You can choose to borrow less from the bank and stay at a monthly loan payment that fits more with your lifestyle.
Know Your Closing Costs
Closing costs often come as a shock to buyers (and sellers). While it is true that the real estate agents' commissions are paid from the seller's proceeds, there are still plenty of items on the buyer's side that need to be paid at closing. Talk to your mortgage lender for specifics, but you can expect to pay for prorated taxes, up to a year of homeowner's insurance, points, other mortgage broker fees, and the appraisal.
Plan on at least five percent of the cost of the home in closing costs, in addition to the down payment.
Know That No House is Perfect
When shopping for a home, understand that no home is perfect. No matter how hard you look, you will not find a home that has every single item on your wishlist. Your best option is to prioritize your list and pick the home that has the best combination of items for your current needs. It is often suggested that you choose the home with the most square footage so you can grow into it, but the home's location is also extremely important to many buyers.
If you approach the home buying process as a level-headed business decision that you need to make while considering budget, out-of-pocket expenses, and current needs, you will end up with a house that works for both you and your bottom line. Explore your options with the homes for sale in your area.