It takes time to plan and save for your first home. But having your own home can be an excellent long-term investment. Few people truly understand the opportunity that homeownership provides. Fortunately, if you follow this step-by-step process, you can enjoy many of the benefits that come along with owning a house.
Find the right mortgage company
The right mortgage company for you depends on several factors, including your current financial situation, the type of loan you’re seeking for example if it’s small loans online, borrowing goals, and overall goals for your financial future.
The mortgage market is enormous, and it offers a wide variety of loan options. Here’s what you need to know about popular types of home loans:
Adjustable-rate loans: These types of loans offer a lower initial interest rate than fixed-rate loans, but they come with the potential for higher payments later — especially if the market falls.
Adjustable-rate mortgages: (ARMs) are a good choice for homeowners who plan to move in three to five years. If you sell your home before the rate adjusts, you’ll likely come out ahead financially.
Fixed-rate loans: These loans offer a fixed monthly payment for the life of the loan. These loans aren’t tied to market conditions, but they’re typically more expensive than ARMs. Fixed-rate loans are best for homeowners who expect to stay in their homes for five or more years.
Interest-only loans: These loans offer a fixed monthly payment, but you’re required to pay interest only on the amount you’ve borrowed. These loans are best for homeowners who could repay the principal in just a few years.
Know what you can afford
When you’re thinking about buying a house, it’s important to know how much you can afford to spend. After all, it’s a big decision. You don’t want to be stuck living somewhere that doesn’t suit you or paying more than you can afford.
It’s also important to have a good idea of what location suits your lifestyle. For example, if you have a young family, you’ll want to make sure you can find somewhere with schools and play areas within a reasonable distance. If you’re planning on having children, there are even some online tools that can help you work out what mortgage size you’ll need for your home.
Decide how much you can save for a down payment
When you apply for a mortgage, mortgage lenders will want to know how much you have for a down payment. This amount, usually 20%, is the down payment you are required to put down to secure a mortgage.
You’ll also need other closing costs such as mortgage insurance, appraisal, and credit report fees if you’re using conventional financing.
So, how much money do you need for a down payment? While mortgage lenders generally accept down payments as low as 3%, most mortgage programs require at least a 5% down payment.
Create a budget
A budget is a forecast of your income and expenses. When buying a house, a budget will help you determine how much you can afford to spend buying a house and will also show how much the house will cost each month.
Your budget will also show you how much money you are willing to pay each month for the mortgage and any additional costs.
It’s essential to establish a budget before you consider buying a house. If you don’t have a budget in place, you may inadvertently buy a home that costs more than you can afford. Creating a budget can be tricky. Your budget must be realistic and take into account your income, bills, and any debts. Your budget should include income, bills, debts, house repayments and other expenses.