There are certain things you should know about first-time ownership. The purchase of your first home is an exciting milestone in building your wealth but requires planning. Here are some tips to consider before buying.

Tips to Consider Before Buying:

1. The current market: The real estate market is constantly shifting. Real estate tends to alternate between a buyer and seller’s market. Over the past year, it has been a buyer’s market as interest rate increases has impacted the number of people capable of purchasing a home. Overall, there still is a supply shortage keeping values relatively high, but slightly lower than they had been in recent years. Homes are now sitting on the market for a little while, where at the peak, houses were selling within hours amid bidding wars. When you feel you are ready to buy your home, being aware of the current market conditions is crucial to your purchasing decision.
2. Nail down a budget: Beyond your upfront costs that include your down payment, closing costs, moving costs and additional costs to go towards renovations, personal touches, etc., it is wise to calculate your homebuying budget by following the 30% rule, which stipulates that your mortgage should not exceed 30% of your monthly gross income. Other things to factor in include your mortgage payment plus interest, property taxes, homeowners’ insurance, and possibly homeowners associate (HOA) fees. Of course, there are also additional expenses like utilities, internet, phone, cable, landscaping, and maintenance fees.
3. Emergency fund: As a homeowner you need to plan for the “oh by the ways,” those unexpected costs that arise as a homeowner. It is wise to have around three to six months’ worth of expenses saved in an emergency fund.
4. Your credit score: Your credit score is an essential part in knowing how much your monthly payments and interest rates will be. For first time buyers, having a credit score between 580-850 is a safe range. The higher your score, the more likely you are to qualify for low interest rates, save in fees and get quick approval. Review your credit report for accuracy before applying for a home loan. There are three major credit rating bureaus and you should check each of them as they do not always contain the same information. [TransUnion, Equifax and Experian]
5. Understand mortgage options: First-time home buyers can apply for a Federal Housing Association (FHA) loan to finance a primary residence. It is a good fit for beginners since it requires a small down payment, better rates for low-credit borrowers, lenient credit score guidelines, and lower mortgage rates. To be classified as a first-time buyer, you must meet the following criteria:
   1. An individual who has had no previous ownership of a residence in the past 3 years ending on the date of purchase (including a spouse).
   2. An individual who has been displaced and has only owned a principal residence with a partner.
   3. A single parent who has only owned a principal residence with a former spouse.
   4. An individual who has only owned a principal residence not permanently attached to a permanent foundation in accordance with regulations.
   5. An individual who has only owned a property that was not in compliance with state, local or model building codes and cannot be adjusted for less than the cost of constructing a new structure.
6. Finding a credible realtor: It may be helpful to find someone who can help navigate the search and buying process. A real estate agent is a licensed professional who assists in the buying and selling of properties. A capable realtor should be an active member of the National Association of Realtors as well as the state association in which they work. As a first-time buyer, you will want an agent who knows your vision and mostly importantly your budget. Some key indicators of a trusted professional include a valid real estate license, positive recommendations from credible sources, good online ratings, and years of experience in the business. You will get the best advice from a realtor who intimately works and knows the locations you are interested in.
7. Determining wants and needs for your home: As you and your realtor begin the search for houses, you (and your partner, if applicable) should create a joint list of some must-haves that apply to your current lifestyle and looking ahead to the future. During your search, some important questions and things to think about may include, does this location fit my work-life balance? Are there shops and stores in a short distance? Can this house support your life for at least five years from now (think about children, location of schools, crime rate, and adequate space for these life changes). Is there an area where you can work from home? These are all great questions to consider in deciding your wants and needs for your new home.
8. Gathering documentation: The purchase of a home will most likely be one of the biggest purchases you make in your lifetime. From the beginning to end of the process, keeping track of your paperwork is crucial. Some may prefer to have these documents as digital files for quicker access, but you should keep a physical copy of important housing information, mortgage statements, deed, and closing agreements in a hidden, fireproof safe.

Be sure to check out our whitepaper, “Financial Planning For Every Stage of Your Life”, where you can find useful information about the next steps to take as you approach each milestone. Download a copy of it here.

Questions? Contact KLR Wealth Management, LLC.