Buying Your First Home? 8 Personal Finance Hacks You Need to Know

buying first homeLet’s face it: Buying a home can be confusing. If you’re not sure what you’re doing, you could end up paying for it. To make sure your first home purchase works in your financial favor, read up on these homebuying hacks.

Make a Smaller Down Payment

You don’t need a big down payment to buy a home. With FHA loans and 203(k) rehabilitation loans, homebuyers can put as little as 3.5 percent down. Rural buyers and veterans can buy with no down payment through USDA and VA loans. Fannie Mae offers two types of 3-percent down payment loans: the HomeReady mortgage and the Conventional 97 Percent mortgage.

… Or Pay More and Save

A lower down payment helps you achieve homeownership sooner, but it’s not without downsides. Lower down payments mean higher mortgage rates and more spent over the life of your loan. In most cases, you’ll also have to pay for private mortgage insurance, or PMI.

If you lack the cash for a big down payment, look for down payment assistance programs through state and local housing authorities. First-time homebuyers can also withdraw up to $10,000 from their IRA for a down payment without paying the 10 percent early-withdrawal penalty. Before going this route, make sure tapping into your IRA won’t affect your long-term financial goals.

Save for Other Fees, Too

Buying a house comes with fees. According to The Motley Fool, closing costs are typically 2-5 percent of your home purchase price — on a $200,000 home, that’s up to $10,000 in fees. Closing costs include fees like loan origination, inspection, appraisal, title search, underwriting, and attorney fees, as well as escrow deposits and lender’s title insurance.

… But Don’t Raid Your Emergency Fund

One you’re a homeowner, you’re responsible for fixing the broken water heater and the HVAC system on the fritz. Leave your emergency fund intact so you can cover unexpected repairs. If you don’t have the cash for closing costs, ask the seller to pay some or all of the closing costs — but you’ll need a strong offer to make the ask.

Don’t Be Too Picky

Premium homes get premium prices. While you shouldn’t compromise on important features like location, size, and layout, don’t let minor details like ugly wallpaper stop you from buying a home that’s otherwise a great fit. Homes with cosmetic challenges are more affordable, and as long as the issues are surface level, renovations are cheap and easy.

… But Get a Buyer’s Inspection

Some problems shouldn’t be overlooked (like leaky roofs, DIY plumbing, and cracks in the foundation). By spending a couple hundred dollars on a buyer’s inspection, you can save thousands in home repairs. If an inspection reveals major problems, move on or negotiate repairs with the seller.

Beware that negotiations could make a seller walk in a competitive market. In Cornwall, NY, only 2.3 percent of homes sell below listing price. Push too hard during negotiations and you could lose a shot at your dream home.

Boost Your Credit Before You Buy

A better credit score means lower mortgage rates, and lower mortgage rates mean less money paid over the life of your loan. As Nerdwallet explains, “The lending industry carves up the credit score scale into 20-point increments and adjusts the rates it offers borrowers each time a credit score moves up or down by about 20 points.” For the best mortgage rates, aim for a score of 760 or higher.

… And Then Shop for Lenders

Mortgage terms aren’t set in stone. The mortgage rate you’re offered can vary from lender to lender, so get quotes from several lending institutions before signing anything. Keep mortgage terms in mind too: While 30-year fixed rate mortgages are the most popular, buyers who plan to move in five years can save with a 5/1 adjustable-rate mortgage.

If you go into the homebuying process without knowing your options, you could end up paying more than you bargained for. While more experienced buyers may be able to navigate the process on their own, first-time buyers shouldn’t buy a home without help. For expert assistance buying your first home, find a real estate agent to guide you through the ins and outs of homeownership.

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