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Buying a home can be a tricky task.
There are many different lenders out there offering a wide variety of loans with various terms that could cost or save a first time home buyer a significant amount of money.
The best way to ensure that you are getting the right loan for your financial situation is to follow some simple rules for buying a home. Here are some good home buying rules that every first time home buyer should follow.
Save Up For A Substantial Down Payment
Every home buyer should be prepared to put a substantial down payment down on the home that they choose. Before the recent housing bust, many people purchased homes with very little or nothing down, meaning that they had no equity in the home. After housing prices fell, many of these homeowners found themselves underwater on their homes, owing more on their loans than their homes were worth. This made it very difficult for struggling homeowners to refinance or sell their homes.
Putting up a down payment of at least 20 percent of the price of the home gives you immediate equity in the property and lowers the amount you must pay for homeowner’s insurance.
Choose A Fixed Rate Mortgage Loan
Mortgage loans that have a fixed interest rate are generally the best choice for a first time home buyer.
The main allure of an adjustable rate mortgage is that the interest rate has the potential to go down over time, but many people tend to forget that the rate can go up too, potentially raising the cost of the monthly payments for their loan by a considerable amount. Unlike an adjustable rate mortgage, the monthly payments for a fixed rate mortgage loan remain the same for the entire life of the loan, allowing you to easily budget for the payments.
Choose an affordable loan with a term of 15 or 30 years, depending on your financial situation.
Avoid Maxing Out Your Finances
Many people make the mistake of choosing the largest loan they think they can afford so that they can get the biggest home possible in the nicest neighborhood in the area. This can be a recipe for disaster because this choice often does not take into account all of the additional costs of owning a home, such as maintenance, lawn care, taxes, and insurance.
Once you have received a quote from a lender letting you know how large of a loan they believe you can afford, reduce the amount by 20 percent and use that number as your high limit for purchasing a home. This increases the chances that you will be able to actually afford owning your home and will still be able to save for your future.
Do you know of any other home buying rules first time buyers should be aware of?