Financial Tips to Know Before Buying Your First Home

Congratulations! You’re graduating from daydreaming on Zillow to actually committing and buying a home. It’s easy to be tempted by the house with the perfect view, the trendy neighborhood, or the fully finished basement. While it’s important to identify a house that has your wants, you also need to be able to afford it. Having the assistance of professionals, knowing your budget, and sticking to it will make the buying process run smoothly.

Here are some tips to know before you begin the long process of buying your first home. 

Research Home Buying and Homeownership

While home buying and ownership can seem like a daunting task, the key is taking it one step at a time. Breaking down large tasks into smaller pieces can not only make the steps easier to digest but can allow you to pay more attention to the finer details.

Prepare a Budget

Be ready to adapt and adjust to a new budget. Houses are expensive, but taking proactive steps to ensure you’re in the best financial position as a homeowner will benefit you down the road. 

Basic costs of homeownership:

  • Utilities
  • Repairs
  • Upgrades
  • Insurance
  • Mortgage
  • Not to mention the cost of buying a home like realtor fees, real estate attorney fees, and closing costs

Consider any home essentials that you will need, as well as any changes you’ll have to make to the home itself. Be sure to include homeowners insurance in your budget. This will help protect your home in general, and cover you in case of a “destructive event”. To protect your home systems such as key appliances, budget in a home warranty. These types of expenditures should be included in your budget as a factor in your monthly expenses.

Adjusting your budget to include home expenses such as utilities, taxes, mortgage. This will give you a more accurate cost of your home. Month-to-month basics of owning a home need to be factored in from the start.

Start from your existing budget to craft an ideal housing budget

This is a great way to determine your current budget of what is affordable and allows you to position yourself where you feel comfortable once you’re all finished with the process. Protecting your home should be at the top of your list, but you need to factor in how this could affect your other financial aspects. Continue to be aware of your current monthly expenses such as transportation, food, and most importantly personal upkeep. 

Check out this: Downloadable Guide to Budgets

Start Saving Early 

The financial factors of buying a house tend to pile up; it’s important to save early for out-of-pocket expenditures. Things such as the down payment and any potential closing costs are items that you’ll need to consider before closing the deal. Closing cost amounts vary depending on the buyer’s loan program, but they typically range from 2% to 5% of the purchase price.

In addition, there are expenses involved with moving into a new home. We’re not just talking about the laborers to move the furniture but also more specific aspects. These can greatly range in price, so it’s important to start saving as early as possible. If you know you want to buy a house in the near future, ensure you have a significant amount of liquid capital on hand before beginning the process of home buying. “Liquid” funds simply mean money that is easily accessible to you, the most liquid being cash. If you have a longer timetable, that aspect is less relevant, so consider long-term investment options

Consider Auto Payments

Auto payments are a great way to manage your various financial accounts. Auto payments can help you avoid any late fees or negative credit marks.

Build your credit score

Maintain your credit score with on time payments. When becoming a homeowner, it becomes even more important to focus on building up your credit score and developing good credit habits. A better credit score gives you access to lower interest rates and better terms. Keeping a lower credit card balance, making payments on time, and having a healthy amount of debt are all good ways to help boost your score.

Managing Your Debt

People often misunderstand debt and only view it as a negative aspect of personal finance. Let’s be clear. Going into debt to generate wealth (like increasing your overall net worth through homeownership) is wayyy different than store credit cards.

Using debt properly, such as paying down higher-interest loans through debt consolidation, getting a line of credit for a new business, or putting a down payment on a car, can help give you a financial leg up.

It’s important to always be aware of how much debt you’re accruing, and how much money you have coming in. (In business, we call this managing your cashflow.) Maintain a good debt to income ratio and leverage your credit wisely.

Increase your financial literacy

As Kenneth points out in this article, “We fear what we don’t understand, but scared money don’t make money. We all need to face that fear and understand some foundations of how money works.” Make sure you understand the basics like what APR and compound interest.

Look into Mortgage Options

When buying your first home, it’s almost inevitable that you will end up with a mortgage, the question is which type of mortgage is best for you. 

  • FHA(Government): Meant for typically first homebuyers with smaller down payments and lower credit scores, who are unable to be approved for a conventional loan.
  • VA(Government): Meant for active-duty military members, reservists, veterans, and their significant others if applicable. 
  • USDA(Government): For low-to-moderate income borrowers to become homeowners while also within rural areas
  • Jumbo(Private): Usually higher-end borrowers who are looking into buying more expensive homes. 
  • Conventional(Private): A good match for borrowers who have a strong credit history, stable employment history, minimal debt, and can provide more than 3% to a down payment.

It’s important to do your own research and pick the one that fits your needs the best.

In addition, some loans are privately backed by companies such as Fannie Mae and Freddie Mac. Those may have have a higher interest rate. If you choose to go with a conventional loan and make a down payment of less than 20% from the home’s purchase price you could be required to obtain private mortgage insurance(PMI). Conventional loans are also the only one that offers 10 or 20-year loan terms while the rest offer 15 or 30 while being insured by the government. 

Speak with Real Estate Agent

For those who may be a little more unsure during this process, the additional help of a real estate agent could be right for you. Be aware additional funds will be needed to pay realtors commission which is typically 5% to 6% which is split between the buyer’s and seller’s agent. Theyll help you consider changing needs over the next few years, commute, job prospects, and affordability with knowing the average cost to live in the neighborhood you explore.

Getting assistance from a professional could better your chances of getting your desired home for a lower price point.

Take the time to consider this at the beginning of the process depending on the timetable you may have and what you’re capable of doing on your own. They can show you homes with features that you need and/or want, as well as ensure you’re in the right neighborhood, part of your preferred school zone, or that you are close to relatives or loved ones.

In addition, they are well-versed in all the legal aspects of buying a home, which is yet another hurdle you have to overcome. While finding the right real estate agent might take a bit of time, they can be greatly beneficial to you during the entire process, and help ease any stress you might have to deal with.


Understand Your Relationship with Money

What does it mean to have a relationship with money?

It means understanding your own personal money story and how that has influenced your views about money. It means being honest with yourself about your money habits and working to change the ones that aren’t serving you. It means consciously choosing how you want to relate to money in your life.

A healthy relationship with money starts with a foundation of self-awareness and ends with making choices like buying a home.

Buying a first home is an incredible step for people and something to be proud of. Planning financially can help you reduce anxiety during this process, and allow you to revel in your accomplishments.

Related Reads:

Steps to Buying Your First Home

How to Improve Your Credit Score

Best Financial Goals to Set After Graduating

Downloadable Guide to Budgeting

Ask the Money Coach: Losing it While Living at Home

Affording a Pet

Complete Guide to all the OTHER Types of Insurance


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