Many first-time home buyers find the process quite intimidating, and it’s easy to understand. After all, the markets, terminology and fluctuations in pricing can be hard to grasp, not to mention work with. In an age when real estate mortgage rates seem to be plunging, now’s a great time to consider buying a new home, provided you’ve gone through a checklist to determine if you’re ready. Here’s some tips for first-time home buyers who need a crash course on the basics.
#1) Identify Your Readiness
Many people think they’re ready to take on home ownership, but how many are actually in a feasible financial position? Depending on the average home price in your particular area, coupled with your household income, it may be foolhardy to pursue a home purchase until you are in a better life position. Ideally, one should be ready to buy a home with money left over, rather than feel saddled with crushing mortgage payments later on. Make sure to do your calculations long before getting too deep in the process. You may find that renting a condominium, apartment or even a section of a house is cheaper than buying, and it may be what gives you an opportunity to save for a larger downpayment while advancing your career for better pay.
#2) Consider The Hassles
Many people dream of owning a home for the feeling of success, and as a personal life goal. However, many may find that the responsibilities of owning a home are a right pain, and regret their decision. Those who are always on the move might not appreciate the constant maintenance required to keep the house in tip top shape, whilst mowing and watering the lawn, dealing with rodents and leaks, or invasive insects consuming your flower garden. On the other hand, others might find these tasks wholly enjoyable, and consider it part of the home owning experience. Either way, you’ll be responsible for the upkeep of your home, both indoors and out. If you’re used to renting, or living in an condominium for a prolonged period of time, the sudden shift in your daily lifestyle and schedule could be quite a shock. Don’t forget about the financial aspect, either. Unforeseen expenses can pop up, as can changes in real estate taxes, utility prices and insurance costs.
#3) Understand The Investment Angle
Most home buyers forget that a home is a literal investment which pays theoretical dividends over time. House prices tend to rise over the course of a few decades, which means buying now and selling later on can yield a significant return. Naturally, this involves factoring in things such as inflation and the potential for a housing market crash, but these are generally easy to navigate. By thinking long-term, you can effectively tackle two issues at once – finding a home to enjoy many years in, and the prospect of selling it later on if you wish to change your scenery a bit. It’s also important to remember that a house equals equity, and that equity will continue to build over the course of your mortgage payments. The more you pay off, the greater your available equity should you wish to borrow against it.
#4) Choose The Right Mortgage Model
Figuring out the right mortgage model means correctly identifying whether you want an open or closed mortgage, as well as a conventional or high-ratio one. The latter depends largely on your household income, and how much you’re willing to put into a down payment. For instance, if you choose to pay 20% or more of the total cost of the house as a down payment, you are considered to be in the conventional camp. This removes the need to have mortgage insurance, which is an extra out-of-pocket fee for the home buyer. However, the opposite also holds true. Those who pay under the 20% mark will have to get mortgage insurance. This is a trap, since you will have to pay the fee yourself, or have it tacked onto the overall amount of the mortgage loan. If you can’t put down at least 20% as a down payment, consider holding off until you can. This will save you quite a lot of money in the long run.
#5) Fixed VS. Variable Rate
This is one of the more common aspects of the mortgage buying process that most people have heard of, and it also requires a sit-down and evaluation of the pros and cons. Fixed rate mortgages are attractive for a few reasons, most notably peace of mind when it comes to laying out your payment structure in a predictable, hassle-free manner. Those who are risk-adverse may want to choose this kind of mortgage to avoid any nasty hiccups in the housing market over the years. It guards against interest rate hikes, as well. Conversely, variable rate mortgages are subject to fluctuations in interest rates, though most tend to have a noticeably lower rate than fixed mortgages. Since these fluctuations affect principal and interest, you could experience higher overall costs, or lower, depending on the market. It’s worth noting that monthly payments still largely remain the same, but more of that payment will go towards interest.
There’s a lot to take in when it comes to tackling a mortgage, but it’s not as frightening as some might think. In fact, understanding how mortgages work can be the first step in dipping into the real estate market, and making a go of a very lucrative and rewarding financial sector. If your dream is simply to own a home that is yours, free and clear, it still pays to understand how much you’re going to fork out over a 25-30 year period. After all, owning a home shouldn’t mean wasting money unnecessarily.
For the finer details about mortgages and whether you’re in a prime position to buy a new home, contact us today so that we can work with you, and guide you along.