Are You Buying Your First Home? Consider These Factors.

By: Matt Schaub

If you're a renter and thinking about purchasing your first home, here's what you should consider:

1. Consider how long you plan to live in your home.

Here's what can happen. Say you buy your dream home. Or, maybe you're living the first part of your dream simply by purchasing your first home. And then word comes. That great job across the country? Congratulations! You got it! The thing is, you'll be moving out of this great home after just a short time. For various reasons, you may not have figured you'd be moving so quickly. Unfortunately, you may end up paying money in order to sell your home. And the value of your home may not have appreciated enough to cover the costs that you paid to buy it, and the amount it will cost you to sell it.

Just how long does it take to cover the buying and selling costs? That depends on various economic factors. Most parts of the country have an average of five percent appreciation per year. In this case, you should plan on staying in your home at least three to four years to cover buying and selling costs. If the area where you buy your home experiences an economic upturn, the length of the time to cover these costs could be shortened. The reverse scenario could also take place.

2. Think about how long your home will meet your needs.

What features do you require in a home to satisfy your lifestyle now? Will your needs be changing in the future?

For example, a two-bedroom dwelling may be perfect for a young couple with no children. However, a growing family could quickly outgrow the space. In that case, it might be smart to consider a home with room to grow. And maybe an attic could be converted to a master suite. By taking into consideration the things you'll require from your home in the future, you'll be better able to focus on the right home for your entire family for right now as well as for the future.

3. Look at your credit as well as your overall financial situation.

The right company can put you together with the lender that's right for you. But you should be realistic about your current financial situation. For example, a less than perfect credit score won't keep you from working with a lender who will arrange the loan that's best for you, but you might have to pay a slightly higher rate of interest and higher fees. Right now may or may not be the best time for you to buy a new home. Ultimately, it's a decision that only you can make. Do you feel less than comfortable borrowing as much as you qualify for? Or is that the path you want to take, since your increasing salary and growing earnings potential will make that more expensive home the right choice right now? Make sure that whatever you do, it's within your comfort zone.

If you use an online calculator provided by a company that matches your needs to the best lender, you can quickly get a quote on home mortgage interest rates for you.

Have you heard of the "28/36" rule? That says that your monthly housing costs should not exceed 28 percent of your income, and your total debt should not exceed 36 percent of your total monthly income. But lenders often make loans customized to a particular person's situation. The type of loan depends on several factors including your assets, credit history, job potential and other items. Sometimes, lenders can push the ratios up to 40-60% or higher. With the range in options, it's important to know you'll have the opportunity to work with a lender you feel comfortable with - a lender who will customize a loan specifically to your needs.

4. Consider where the money for the transaction will come from.

Homebuyers typically need money for the down payment and closing costs. But with a variety of loan options, a lot of money saved for a down payment is not always necessary. One factor: can you prove that you are a good financial risk to a lender? Perhaps your credit is not the best. But you have managed to save 10-20% for a down payment. In that case, your lender, when putting together your customized loan package, may feel that you are indeed a good financial risk. You may get a loan with a payment plan that is very attractive to you.

5. It's your first home? Be aware that there are additional costs to home ownership.

What are some of the home ownership costs that you never had to think about as a renter? Maintenance and home improvement costs, to name just two. And there are taxes and insurance costs as well. With a condominium, there may be an owner's association fee. If these costs are a concern, make sure you let your lender know you'd like to limit these. And although these costs are very real, the bottom line for many people is that they are far outweighed by the many joys, conveniences, and ultimate financial rewards that home ownership can bring.

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