The internet is full of helpful (and not so helpful) advice for first-time homebuyers. It’s understandable; we’re talking big money for most folks.
Hindsight is a wonderful phenomenon. By looking back and reviewing our past, the right decisions seem obviously simple because we know how it will play out – “hindsight is always 20/20” – it’s the perfect eyesight to see perfectly.
Here are three tips for first-time homebuyers from the experts, using the benefit of their hindsight.
Shop for a mortgage before you look for a house
Shopping around for a mortgage is an important step in finding a financial institution to work with before getting preapproved. It isn’t enough to pick a company based on their advertised mortgage rates.
Essentially, you are signing up for a long-term relationship with your mortgage provider. It just makes sense to find a company you can work with so “Test drive” some lenders by meeting with them to discuss the options available to you.
There will be several different mortgage proposals you can consider. You can then get that all-important preapproval before you start your search for a home. The amount that you get preapproved for becomes your house hunting budget.
The down payment
Don’t underestimate the importance of a 20% down payment. Without it, the lender will view you as a risk and you’ll end up having to make up for it by paying more money over time.
- Without a good deposit, the bank will see you as a risk
- Not serious about buying a home,
- Might not necessarily follow through on the mortgage
- As a possible foreclosure, dumping them with the cost of the house
- You will have to buy mortgage insurance
Without a 20% down payment, the bank will require you to sign up for mortgage insurance. This is approximately 1% of the total balance of the mortgage each year and is added on to your mortgage payment.
The discipline required to save such a sum is really good practice for the realities of home ownership. There are a lot of costs involved and you need to be smart with your money. By making better choices with your dollars and saving the 20% down payment you are preparing to be a homeowner.
15-year mortgage versus 30-year mortgage.
With a 15-year mortgage, your interest to the bank will be a lot less than what you’ll pay over the course of a 30-year mortgage. A 15-year mortgage is not only much shorter in length; it also comes with a lower interest rate.
People get a 30-year mortgage because they almost always have a lower monthly payment. With a 15-year mortgage you’re paying more principal each month. It’s not a good long-term choice to get a 30-year mortgage but folks tend to back away from the bigger 15-year payment, believing that they’re not going to be able to afford it.
If you’re worried about the monthly payment for a 15-year mortgage, then a 30-year mortgage for the same amount could mean the house you are buying is more than you can afford.
Knowledge is power and these three tips from old-hands should be some of the factors a first-time homebuyer considers before taking the plunge. Happy home hunting!