Tips for First-Time Homebuyers

Buying a home for the first time

With the state of the economy continuing to worsen and the housing market struggling along with it, now may not seem like the best time to buy your first home. However, if you make a few wise decisions in the process of buying a new home, you may be able to make a profitable investment. Here are several important tips for first-time homebuyers to take into consideration before purchasing their new home if they wish to get the most out of investing in a property.

1. Know how much you can actually afford.

In previous years, banks would typically let families take out a home loan of no more than three times their annual income, but with the house market struggling, banks are allowing people to borrow more than they are truly able to afford. In fact, some loaners are allowing home buyers to take out loans of four or five times their annual income!With such a large loan, families will often find themselves unable to keep up with their mortgage payments. So, before taking out a loan, be aware of what you can actually afford, and do not be persuaded into borrowing more money.

2. Do not settle for anything other than a fixed interest rate.

In order to appeal to more buyers, many banks are offering mortgages with variable interest rates. Such mortgages usually start out with seemingly low monthly payments, which is why buyers are so apt to settle for a loan with a variable interest rate. But, once the interest rate increases and payments skyrocket, homeowners find themselves struggling to make the monthly payments on their homes. Once the interest rate changes, many homeowners may experience 'payment shock' because monthly mortgage payments can double when the interest rate changes. First-time homeowners would be wise to only settle for fixed-rate mortgages, even if it means borrowing less money.

3. Opt for a fifteen-year loan instead of a thirty-year loan.

Thirty-year loans are appealing to first-time buyers because the longer the loan, the lower the monthly payment. This being true, first-time buyers are hesitant to take out a fifteen-year loan because they know they will be able to afford to take out a larger loan if they choose a thirty-year plan. However, taking out a thirty-year loan costs so much more over the course of a lifetime than a fifteen-year loan. In fact, the extra interest you will pay on a thirty-year loan makes it seem like quite a waste of money. So, if given the option, always chose a fifteen-year loan. You will save thousands of dollars in interest payments while paying off your mortgage.

4. Save money for a down payment before purchasing your first home.

Down payments, even those as little as 20 percent of the purchase price of the home (€40,000 for a €200,000 property), can save you a significant amount of money over the long run. Putting money down not only lowers your monthly payments, but it allows you to take out a smaller loan and therefore save money in interest.

5. Make the effort to build good credit before investing in a home.

If you have a limited credit history, you likely will not even be approved for a home loan. So, it is a wise choice to sign up for a credit card and a cell phone plan before trying to apply for a home loan. Paying your credit card and phone bill on time will have a positive impact on your credit history and likely qualify you for a lower interest rate on a home loan.

author: Jennie Long

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