You can already see yourself standing at the threshold of your dream home, gleaming with pride as you hold your sparkling new set of keys. You know you’re ready to sign the paperwork and hand your money over for those keys, but have you done all of the research to prepare for your big purchase? To ensure everything goes smoothly, be sure to follow these four ‘must-dos’ for first-time homebuyers.
[Still deciding whether or not to become a first-time homebuyer? Ask yourself these three questions first.]
#1 Research Your Mortgage Program
If you decide to finance your home with a mortgage, your first step is to research which mortgage program is right for you. Our list of mortgage programs makes this step simple. The details of each program are listed to help you determine which program is right for you. As a first-time homebuyer, a US Federal Housing Administration (FHA) loan may appeal to you as it can help accommodate borrowers with low credit scores, typically below 500. The loan also only requires a down payment of 3.5%, while other loan programs generally require a larger down payment.
#2 Calculate Your Total Monthly Housing Cost
Before purchasing your dream home, be sure to calculate all of the costs associated with buying and owning a home to make sure you remain within your budget. Along with your monthly mortgage payment, you will also need to account for homeowner’s insurance, tax payments, and homeowners association (HOA) fees, if applicable. To determine your monthly mortgage payment, use an online mortgage calculator. You’ll need to input your approximate loan amount, down payment, the term of the loan, and interest rate.
Standard homeowner’s insurance provides financial protection against loss due to disasters, theft, and accidents, and is required by most lenders if you choose to finance your home with a mortgage. Several factors help determine the rate of your homeowner’s insurance, but where you live plays one of the largest roles. States such as Florida and Louisiana have the highest rates, while Hawaii and Vermont have the lowest rates. Wisconsin’s average annual rate is on the lower end at $788, in comparison to the national average rate of $1,228.
Property taxes also vary by where you live and are generally based on your home’s value. To determine your property tax, a local tax assessor will establish the tax rate for where you live, and that amount will be multiplied by the value of your home. To learn more about your local tax rate, check with your local county assessor; Dane County’s tax rate is currently 1.8%, which is approximately $4,149 per year for a home worth the median value of $230,800. Also, be aware that rates and fees may change over time, which will also affect your taxes.
Last, if you decide to purchase a home in a planned development, such as a leased property or gated community, you will be obligated to join that community’s HOA. This means you will need to pay monthly or annual fees to help maintain the quality of life for the community residents and to protect property values. Fees can range from $200 to $400 a month depending on the neighborhood or community.
#3 Account for Furnishings and Other Living Costs
As a first-time homebuyer, you will likely need to purchase furnishings and decorations to fill your new home, which can become expensive. To avoid going over your budget, calculate these purchases as part of your final cost of buying a home. Keep in mind that most new homes don’t come with sod, fences, window coverings, or even common appliances like a washer and dryer. Since new homeowners spend an average of $1,250 on appliances alone, it’s easy to blow your budget if you’re not factoring in all the items that you might need to buy.
It’s also wise to calculate your monthly living costs including utilities, groceries, phone bills, nights out, fuel, insurance, etc. to know just how much you’re spending each month. To help calculate these expenses, try using this in-depth monthly expenses calculator.
#4 Have Your Home Inspected
Before purchasing your home, new or used, it’s a good idea to have the home inspected, as it’s an inexpensive way to determine the condition of the home. The home inspection can also be used as a contingency in your purchase offer, meaning that if there are significant issues found you are able to back out of the purchase penalty-free. Typically, home inspectors will examine the exterior and interior of the home and make a report of their findings. The average home inspection costs around $315, however, they can range from $200 to $400+ depending on the size of your home.
Are you ready to make your dream of owning your first home a reality? Contact one of our mortgage professionals to learn more about our loan programs today!
