Buying your First Home

With mortgage rates as low as they are, many renters are thinking about purchasing a home of their own. Several factors should be considered when purchasing a home.

How long you plan to live in the home?
If you purchase a home and get a job transfer or decide to move after only a short time, the value of your home may not have appreciated enough to cover the costs that you paid to buy the home and the costs that it would take you to sell your home. The length of time that it will take to cover those costs depends on various economic factors in the area of the home. Most parts of the country have an average of 5% appreciation per year. In this case, you should plan to stay in your home about 3 years to cover buying and selling costs. If the area you buy your home in experiences an economic up-turn, the length of the time to cover these costs will be shorter, and the opposite is also true. Your Realtor can guide you to choosing communities with good resale value if a job transfer is in your future.

How long the home will meet your needs
What features do you require in a home and community to satisfy your lifestyle now? Five years from now? Depending on how long you plan to stay in your home, does the community have the amenities that you need and will the home be large enough if your family grows? Could the basement be turned into a den and extra bedrooms? Having an idea of what you need now and in the future will help you find a home that will satisfy you for years.

Your financial health - your credit and home affordability
Is now the right time financially for you to buy a home? Would you rate your financial picture as healthy? Is your credit good? While you can always find a lender to lend you money, solid lenders are more skeptical if your credit history is not good. Generally, a couple of blemishes on a credit report will make you a good credit risk and could qualify you for the lowest interest rates. If you have more than a couple of blemishes on your report, lenders may still provide you with a loan, but you might have to pay a higher interest rate and fees.

Some say that you should refrain from borrowing as much as you qualify for because it is wiser not to stretch your financial boundaries. The other school of thought says you should stretch to buy as much home as you can afford, because with regular pay raises and increased earning potential, the big payment today will seem like less of a pay-ment tomorrow. This is a decision only you can make. Are you in a position where you expect to make more money soon? Would you rather be conservative and fairly certain that you can make your payment without stretching finan-cially? Make sure that whatever you do, it's within your comfort zone.

To determine how much home you can afford, talk to a lender, ask me for a referral to a mortgage specialist or go to my mortgage calculator. Good calculators will give you a range of what you may qualify for. Lenders today are making loans customized to a particular person's situation. Your monthly housing costs can't exceed 32 percent of your income and your total debt load together with your housing costs can't exceed 40 percent of your total monthly income. It’s important for you to know your options.

Where the money for the transaction will come from
Typically homebuyers will need some money for a down payment and closing costs. However, with today's broad range of loan options, having a lot of money saved is not always necessary - if you can prove that you are a good financial risk to a lender. Moreover, you could also look at homes/condos with assumable mortgages. If your credit isn't stellar but you have managed to save 10-20% for a down payment, you will still appear to be a very good finan-cial risk to a lender. If you have excellent credit, you may qualify for zero-down. However, interest rates are higher.

The ongoing costs of home ownership
Maintenance, improvements, taxes and insurance are all costs that are added to a monthly house payment. If you buy a condominium, townhouse or a home in one of the newer communities, a monthly homeowner's association fee might be required. If these additional costs are a concern, you can make choices to lower or avoid these fees. Be sure to inform your realtor your desire to limit these costs.

If you are still unsure if you should buy a home after making these considerations, you may want to consult with an accountant or financial planner to help you assess how a home purchase fits into your overall financial goal

Your plan
1.  Find the right representative

Even if you’re not quite ready to buy, your buyer’s agent can be an absolute wealth of information, and can often offer ‘scoops’ on local developments you might not have know about otherwise.  Speak to your agent first and he or she can be helping to guide you right from the start.

2.  Find out what your price range is

Online mortgage calculators are a good place to start, but as you get closer to being ready to buy, there is no substitute for a written mortgage pre-approval.  Just speaking to your lender is an extremely worthwhile venture – this is the only way to really get an in-depth picture of your overall financial picture and to discover exactly what you can reasonably afford to spend on a home (and possibly on renovating).

3.  Find out what your local market looks like

The internet can be incredibly valuable in doing preparatory research.  Start with your agent – he or she can direct you to valuable resources and immediately start e-mailing you real estate listings that may interest you (or at least give you a better idea of what your needs and wants are).

4.  Find out what your true needs and wants are

Compose a needs/wants list that takes into consideration your local market conditions, your price range, and the advice of your real estate agent.

5.  Find your dream home!

Once you’re ready to act, you may be surprised by how quickly you can make a decision.  Armed with your pre-approval, a little market knowledge, and your needs/wants list, call your real estate agent, hit the pavement, and when you see ‘the house’, put in an offer. 

With the right team behind you, it really can be that easy!

Let us help you find out what you can afford! Our mortgage calculator will help you determine loan amounts, mortgage qualification, or whether you should be renting or buying.

Complete the fields below (e.g., Cost of Home, Down Payment, Monthly Income) and click Calculate Now. To view the different results of your calculation, click on the various tabs. To mail yourself a copy of your results, click the Receive this Detailed Analysis link.