Looking to settle down and start a family? Maybe you want to put your rent towards a better investment? Purchasing your first home is one of life’s most exiting goals, but are you prepared to dive into the biggest financial commitment of your life thus far? Here are a few considerations to make before starting your home search.
Location, Location, Location.
There are many factors that limit where we choose to live. For young professionals, the main concern is typically commute times. Generally, the closer you get to business centers such as Downtown Dallas, Fort Worth, Frisco, and Mckinney, the more costly homes will be.
Top School districts and a safe area are primary concerns for young families. While it is assumed the nicest schools are in the most costly locales, there is no shortage of quality school districts with affordable and safe neighborhoods.
You may also consider the quality of communities, local amenities, and the age and size of properties in the area.
It is important for first time home buyers to weigh these factors against the listed price of homes. With these considerations in mind, you can narrow the amount of prospects rather quickly.
What Type of Loan is Best
A stark realization that many first time home buyers face is the true cost of a home loan. With interest rates increasing, you could end up paying twice the sale price over the lifetime of a loan.
If you can not afford a 20% down payment (or don’t want to use a big chunk of your savings), it may be best to opt for an FHA loan. This allows you to spread out much of the initial cost over the rest of the loan term.
In order to secure a good loan, you must ensure that you have well established and reliable credit. The higher your score, the better interest rate you can negotiate for.
Before jumping into the home buying process, we always recommend you consult with a CPA and get pre-qualified for a home loan.
Costs Associated with Buying and Owning a Home
Though most of the initial expenses of a home purchase are in the down payment, there are various other costs you will face during the buying process and long after you own the home. Below is a list of the most common costs associated with residential purchases for first time homeowners.
- Closing Costs
- Homeowners Insurance
- Mortgage Insurance (for FHA loans)
- Property Taxes
- HOA Dues
- Repairs and Renovations
- Furniture, Appliances, and Tools
These added costs can cause trouble if you are not prepared which is why I recommend following the 28/36 rule.
Ready to Commit?
This is the most important thing to consider before starting the search. Home ownership is a much longer commitment than a lease. As long as you are ready to settle for a while and you have the financial stability, home ownership may be right for you.