Buying your first new home is a milestone. While this is an exciting experience, the reality is that buying a house is the most expensive investment you’ll ever make.
Recent reports published by YCHARTS has posted the average price of a newly built home in the U.S. at $370,000 as of July 2017. That number can feel daunting and make many first-time buyers think it’s impossible to buy a newly built home, but it’s not if you follow these simple steps.
Get Your Finances in Shape
It’s imperative that you get in financial shape before buying a house. If you’re not in shape, you’ll find homeownership to be far more challenging than it needs to be. To get in the best shape, focus on these things:
- Keep your credit utilization ratio low. If you’re using a majority of your available credit, this will send a red flag to most lenders. You can lower this by paying off as much debt as possible without impacting savings efforts.
- Lay low with new credit. Applying for new credit cards or getting a new car loan sends a similar signal to most lenders. If you can, make sure you have no new activity in the 6-12 months before applying for a mortgage.
- Start saving money. Prospective homebuyers should get into a strong habit of saving 10-20 percent of every paycheck.
The aspect of saving can’t be overstated. You will need money for a down payment, closing costs and more.
Think Beyond the Down Payment
Many first-time homebuyers know they need a down payment. Having a healthy down payment helps you secure the best interest rate, avoid Private Mortgage Insurance if you have a down payment of 20 percent, and potentially save you tens of thousands of dollars over the life of the mortgage.
However, what many homebuyers don’t think about is closing costs. Realtor.com reports you need to plan on closing costs totaling two to three percent of the cost of the house and that’s in addition to your down payment. “Buyers know to expect a down payment and some closing costs, but are often surprised by the extent of the closing costs. They often don’t realize they need to pay for the appraisal and the home inspection up front,” says Davis. These closing costs include a variety of fees that you pay at the time you close on a house, but you also need to be prepared for one-off items you’ll need to pay for out of pocket at the time of service. These items can easily cost over $1,000, so it’s best to be prepared for those expenses.
Get Pre-Approved for Your Mortgage
Getting a mortgage can be a challenge for first-time homebuyers. You can simplify the process in one big way — by getting pre-approval before you even look at houses.
Preapproval works like this, you go to the lender, and they look at your entire financial picture. They ask for things like:
- Pay stubs
- Last two years tax returns
- Last two years’ W-2s
- Most recent bank statements
- Credit report
- Statements of all savings/investment accounts
This seems like a lot of work, but in the end, they tell you how much they’re willing to lend you. You don’t have to take that much, of course, but it helps you look more serious to sellers and helps you cement your budget.
Between Loan Approval and New Home Completion
Once your loan has been approved, many buyers get excited about the new home they will be moving in to and start to explore furnishings, upgrades and decorating items that will make it personalized to their taste and lifestyle. Hold On! Accruing new debt in the months leading up to the closing of your new home can affect the final approval as lenders will run and evaluate your financial standing and credit right before closing. Even the smallest change in debt to income ratio or credit score can dramatically affect your ability to obtain the loan you were approved for when you wrote the initial contract. Best to hold off on any and all of these types of purchases until you have closed and moved in your new home.
Get Prepared for Life After Move-in Day
Congrats, you bought your first house! Now you can ease up financially, right? Wrong! Many homeowners don’t realize the expenses don’t end after you sign for your mortgage.
If anything, they can increase, and you need to be prepared for those expenses, which is why lenders like to see a healthy savings balance before giving you a mortgage. Some of those expenses are:
- Insurance and taxes
- HOA fees
- Home repairs or maintenance
However, if you’ve prepared and established a stellar budget, you can weather most anything homeownership may present along the way. The beauty of a newly built home is that everything is brand new and many items in your new home come with one year or extended warranties enabling the new homeowner to sit back and enjoy life in their new home.
Interested in building the home of your dreams? Contact us today at Petros Homes to get started!