Buying a home is the most rewarding investment that you can have. Although it's a tedious process, owning a house is far better and a lot cheaper than renting one.
In St. Louis, real properties are more affordable as compared to other counties. However, no matter how cheap it is, you still need to consider your financial aspect.
Here is a checklist you can use with regards to finances for first-time home buyers:
1. Know How Much You Can Spend
Although the average home prices in St. Louis is below $200,000 and some even at $120K-$130K for its entry point, you still need to know how much you can spend.
Knowing what you can afford is the primary step to get your finances straight. Aside from financing, you also need to consult trusted real estate advisors at the best-real-estate-directory for proper guidance.
Also, here are some tips you can use to know if you can afford to buy a home:
- You can use an online mortgage calculator and check the monthly mortgage you need to pay, so you’ll know the needed budget you when buying a house.
- Use the 28/36 rule: your household expenses must not exceed 28% of your monthly gross income, and your household debt must not exceed 36% of your monthly income. If your total costs and debt is at or lower than 28/36, then you can afford to buy a home.
- If you have saved enough money for a 20% downpayment; 10% closing costs and other expenses; and can afford the monthly mortgages, then you can afford to buy a home.
2. Consult a Financial Institution
No matter how hard you have figured out your finances, it is recommended to get professional advice from financial institutions or lenders. Your lender can help identify the best loan options as well as down payment assistance and insurance suitable for you.
You can use the following tips to find the right lender:
- Ask your real estate agent for recommended lender consultant.
- Research the reputation of the prospective lender from their previous clients and online reviews.
- Know your credit scores since it plays a significant role in bargaining with your lender.
- Look for the right mortgage fit since they also specialize in various types of loans such as conventional mortgages, mortgage insurance, FHA mortgage, etc.
3. Process Mortgage Loan Applications
After selecting a lender, it's crucial to discuss and mortgage loan applications. In this process, your financial capability will be evaluated for your pre-approval which is one of the essential steps when buying a home.
Also, you need to prepare the following papers in this process so your lender can assess the maximum amount you can borrow:
- Tax Returns
- W-2 Forms
- Bank Statements
- Paystubs
- Information about employment
4. Discuss Down Payment Alternatives
Usually, mortgages offer a 20% down payment; however, you don't need to do just that to have your own house. Depending on your qualifications, you can opt for down payment assistance programs (DAPs) by the federal, state, or local agencies.
With the help of your lender, you can give as low as 1% down payment. They need to assess your finances, the location of the property and other expenses to come up with the best cost-effective plan for your homeownership.
Here are some of the most common and low down payment mortgages you can choose:
- FHA Loan - the friendliest for first-time buyers that offer 3.5% down payment when purchasing a home
- USDA Loan - also known as the Rural Housing provides 100% financing for rural homes nationwide
- VA Loan - available to the members of US military and Armed services and provides 100% financing
- HomeReady Mortgage - offer 3% down payment available for all multigenerational households
- Conventional 97 - offers 3% down payment for home buyers with a credit scores above-average
5. Lock In Mortgage Rate
Interest rates fluctuate every day, so you need to consider locking in your mortgage rate.
Lock in price is a guarantee between the lender and the borrower that a specific interest rate will be followed at a specific cost for a period of changes in the market. Also, lock in rate is recommended especially during the rising-rate of the market instead of the floating rate.
However, there are times when the mortgage lock-in will probably change. Here are a few reasons you need to look out for:
- Changing your down payment amount or choosing another type of mortgage.
- When your credit score changes due to the application for new credit or neglecting to pay on your current debt, then it might change.
- The appraisal of your house may either be lower or higher.
6. Create an Escrow Account
To ensure that no property or funds will change until all the conditions of the transaction have been met, establish an escrow account. For this reason, your lender requires you to pay the homeowner's insurance and property taxes all year round. With each payment held on this, you pay one-twelfth of your annual tax bill and annual premium insurance.
You don't have to worry about it because your lender is required by law to show the annual statements of the escrow account.
7. Consult an Insurance Agent
Selecting a home insurance plan is necessary to protect your home from future incidents like fire or theft. Therefore, it is essential to seek out the advice of an insurance agent.
Here are some reasons why consulting an insurance agent is vital:
- Insurance agent customizes coverage packages suitable for your home.
- Explains the inclusions and exclusions of your policy.
- They are the ones processing the policy payments and document.
8. Figure Out the Closing Fees
Before closing the deal, you need to go over and finalize the contract. If need be, negotiate even at the last minute especially when it comes to the closing costs. Here are some fees you can expect during the closing:
- Attorney's Fee - pays the lawyer who reviews the closing documents on behalf of the seller or buyer
- Closing Fee - payments made for the title company, escrow company, or third party that oversees the closing in your home purchase.
- Home Inspection Fee - payments made to the ones who had verified the condition of the property before you closed the deal
- Transfer Taxes - payment for taxes when passing the title from the seller to buyer
Conclusion:
Investing in a house needs a crucial decision making to attain your desired home at a justifiable cost. The financing part is tedious and critical especially for first time home buyers, so it is best to ask professional help to avoid overspending at unnecessary expensive fees. Moreover, it is cheaper to make a good decision when purchasing rather meet future financial problems due to lack of financial plans.
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