Six Tips for New Home Buyers

Buying a new home is an exciting and satisfying end to a long process for most people. But, even though, being able to say you are a homeowner is something most Americans dream of, getting there is often stressful and overwhelming.

Not to mention that buying a new home is probably going to be the biggest purchase of your life.

As a result, it makes sense to want to get a firm grip on everything you will potentially face while trying to own a property. You don't want to end up with an atrociously high mortgage or live in a home that doesn't meet your needs.

To this end, here are six tips every new home buyer should know before starting home hunting.

Determine what you can afford

Getting on the property ownership ladder can be a great way to build wealth over time when done right. However, to ensure buying your first home doesn't ruin your financial aspirations, you will want to figure out how much house you can afford.

The number you come up with will guide you as you create a budget. Be sure to factor in your income to debt ratio, that is, ensure that your budget breaks down all the other debts you are currently servicing and put them side by side with your monthly income.

While creating the budget, be sure to think about your monthly expenses as well. Understanding how much you make each month and the amount you spend on things like debts and household expenses will give you a clearer picture of what you can afford.

Save for down payment early on.

While there are lenders that allow potential homeowners to buy a home without putting down any payment, like the VA Loans or offer single-digit down payment like the FHA loans, the interest rates and other associated charges for these types of loans are significantly higher than if you had saved up for a down payment.

Saving up at least 20 percent for a down payment will give you more options to shop for and negotiate better terms for the loan. A 20 percent down payment helps you avoid the private mortgage insurance (PMI), which is basically a premium payment to protect the mortgage company in case you default on your payments, and your home enters foreclosure.

PMI is a money drain since those monies are not going towards paying off the actual loan, and they are usually one percent of the total loan value.

Factor in closing costs

Most new homeowners are often surprised when they learn about the amount they have to pay in closing costs. The closing cost covers such expenses as home appraisal, Attorney fees, Homeowners' insurance, credit report costs, and home inspection charges, all of which are crucial steps in the home-buying process.

The closing cost is usually 3-4 percent of the total value of your home. Though your lender will give you a specific amount, so you know how much to bring on the closing day.

So, for example, if when creating your budget, you figured you could afford a home of $182, 500, and you are planning to make a 20% down payment. 

You will need to save $36,500 as a down payment in addition to a 4 percent closing cost of $7,300. So you will need to save a total of $43,800 as your down payment and closing costs.

Research the best mortgage for your unique situation

Every home buyer's financial situation is different. Depending on your unique financial state, you may want to research the different financing options available to you.

While it might be a tad harder for someone with bad credit to get approved for a mortgage, searching online for bad credit loans can throw up a handful of surprises.

Citibank loans for bad credit are an excellent example of an option you can explore to finance your dream home purchase.

Get a loan pre-approval

Most potential new homeowners make the mistake of finding a home before searching for a lender that will finance the purchase. The danger with this approach is that there's a small chance you may not be qualified for the amount you need.

Instead, get pre-approval for a loan first and ensure you receive a loan pre-approval letter before going house-hunting. The benefit is that you can now focus only on properties that fall within your approved amount. 

Also, sellers are more likely to see you as a serious buyer when you present a pre-approval letter, which gives you an edge over other buyers.

Research the neighborhood

The neighborhood your home is located is just as important as the house itself. You probably have an idea of where you'd like to live, the amenities you want near your new home, and the feel and general security of the area.

So, before getting too drawn to a particular house, you want first to research the neighborhood to be sure it meets your preferences. Visit the area at different times of the day to get a feel of the environment and traffic. 

Remember, you don't want to purchase a home to find out that the neighborhood is dangerous or you don't like the area's vibe.