If you’re a first-time homebuyer, shopping for a house can be intimidating. But PenFed is here to help with seven things you should know before you start your house hunt.
1. Is a house the right fit for you?
Homeownership isn’t for everyone. Though having your own white picket fence may seem like the American dream come true, owning a home also means you’re responsible for repairs, maintenance, and bills—responsibilities you wouldn’t have to worry about as an apartment-dweller. And if you are not going to stay in the home for long, you could lose money on the purchase.
If you’re not interested in the extra responsibilities of being a homeowner—or you don’t think you’ll be staying in one place for long—it might make more financial sense to rent.
2. Make sure you can afford a house
Before you start shopping around, you’ll want to be sure your finances are in order. To buy a house you’ll need good credit—be sure to check your credit rating in advance so you can address any issues; as well as a reliable income, and cash saved for a down payment. Expect your down payment to be 20% of the purchase price, though with some shopping around you can find mortgage loans for less. You may also be responsible for closing costs or other fees, so you need to be sure you have enough savings to make sure you’ll be able to buy.
3. Be aware of extra costs
In addition to your monthly mortgage payment and the down payment, you’ll be responsible for paying for homeowner’s insurance, property taxes, and, if your neighborhood has one, homeowner’s association fees—though you may find your lender prefers to roll your insurance and tax payments into an escrow account that you’ll pay for with your monthly mortgage.
Remember that you will also be paying for any repairs or remodeling that is needed before or after you move in. Before you make a purchasing decision, be sure you’ve done the math and weighed all of your costs—they may be more than you think.
4. Know your loans
You’ll have the option of a fixed rate mortgage, in which the interest rate stays the same over the life of the loan, or an Adjustable Rate Mortgage (ARM), in which the interest rate changes periodically. A Fixed Rate mortgage will give you long-term predictability with your interest rate. An adjustable rate will typically start out with a lower interest rate—and if you are not planning to stay for the whole duration of your mortgage, this could mean you’ll pay less in interest because of those early low rates. Pay close attention to the initial period of the loan, during which time your interest rate is fixed, and make sure it’s longer than you intend to live there. Knowing what kind of mortgage you’re getting will help you figure out just how much home you can afford.
5. Get pre-approved before you start shopping
You may think you can afford a home, but until you’re pre-approved by your lender, you can’t be absolutely sure. When you get pre-approved, your lender will verify your financial information and let you know just how much they’re willing to lend you—though this amount is still pending some conditions.
You want to be sure you’re pre-approved rather than pre-qualified, which just means your lender has taken a cursory glance at your finances and estimated what you’re eligible for. Knowing just what you can afford will make finding the right home easier—and let you make a serious offer once you’ve found the perfect place.
6. Be ready to hire a home inspector
Your lender will want to appraise the property before approving your loan, but an appraisal and an inspection are two different things—while an appraisal will estimate value, an inspector is there to carefully examine the house and hunt down any potential problems.
Spending on a home inspection up-front can help you find out if there are any less obvious repairs you’ll need to make down the line—which could help you negotiate the price down or let you walk away from a lemon.
7. Don’t be afraid to walk away
Sometimes things just were not meant to be. If the inspector finds problems, the current owner isn’t willing to accept your offer, or you run into any other trouble, don’t be afraid to walk away. There are lots of homes out there and when you’re making a big purchase like this, it’s worth searching until you find the perfect match.
Now, good luck and happy house-hunting!