I'm working with three different couples right now, all first time buyers. They are well educated with stable jobs and ready to buy that first home. They are very excited to start the process of lookng--of course, it's always fun to look at homes. But the first step is to have a conversation with them regarding how to proceed regarding what will probably be one of the biggest purchases in their lives.
Just because the lender says you can buy a $300,000 house doesn't mean you should! Lenders pre-qualify buyers based on gross income. But after you take out taxes, savings, college debt payments, car payments, insurance payments, entertanment and grocery/gas expenses--what's left?
On the other hand, the difference in the monthly payment for a $200K house and a $225 house isn't that drastic. Go for the higher priced house if it has more of the features and location you want, and if you are comfortable with the payment.
Other considerations for the first time buyer:
- Plan to stay in the home at least five years. Home prices aren't rising as fast as they used to, and in many markets prices are dropping. Look ahead a few years, look at past history, and talk with your agent about where the market is trending for the area you want to buy in.
- Use a local, human lender. The service you get from a local mortgage banker far outweighs the spotty service from an internet lender. You want to work with someone who can answer all you questions, go over figures with you and various methods of financing, who will be there will you those crucial couple of days just before closing. Talk to a few bankers in person and get references. Compare closing fees--those can vary widely.
- Expect some stress. It's very exciting to look at homes, imagine yourself decorating and settling into a neighborhood, entertaining friends on the patio and creating eye-catching landscaping. But negotations can go bad, the house you want may be sold when you decide to make an offer, you may not find what you want in your price range...the inspections can be scary, the seller may not cooperate on repairs..the appraisal may have issues. Try not to get too emotional and remember, if the deal works out--it was meant to be.
Low interest rates and lots of inventory make this a great time to purchase a home. If you plan to buy a home this year, start making plans now regarding researching neighborhoods, financing, and agents. Your research and knowledge will make you more confident as your begin the process of becoming a homeowner!