First Time Home Buyer Advice - First Time Home Buying Tips

Buying a home is a huge financial investment. It becomes a more daunting task if it is the first home that one is buying. A first time home buyer has to be sure that he gets the best deal for the price he is paying. The most crucial aspect of this process is to have one's finances in order. Then one can assess if he qualifies for loans and government grants for the first time home buyers. After the finances have been taken care of, the actual house hunting process can begin.

First Time Home Buying Tips

Arrange Your Finances: Tight credit and higher loan limits are the trend of the day. Hence, it is always prudent to be prepared for a big down payment. For this, an individual must have a sizable amount of savings. Monthly savings can be calculated by subtracting expenses from income on a monthly basis. It is easier to obtain a loan for those who pay a large down payment. However, a person with low savings can still buy a house with a down payment as low as 3% to 5% of the total house cost, by obtaining a private mortgage insurance (PMI).

What is Private Mortgage Insurance (PMI): PMI is an additional insurance that needs to be taken by the borrower in case he makes a down payment of less than 20% of the total cost. This is done so that lenders have some security in case the borrower is unable repay the loan. Though traditionally lenders required a borrower to pay at least 20% of the total price of the house as down payment, with PMI it is possible to buy a house with a down payment as low as 3% to 5 % of the total cost. An individual can make a request for canceling the PMI when he has paid his mortgage to the point that equals 80% of the original purchase price. PMI is tax deductible, through 2010.

Improve Your Credit: Good credit makes getting a mortgage easier as mortgage lenders are always looking for clients who can pay their bills and don't owe too much to anyone. A good credit can also lower the interest rates on one's mortgage loan. A credit score below 680 results in higher interest rates and also denial of home loans. If a person interested in obtaining a mortgage loan has credit scores lower than 680, then it is best to wait for sometime and improve the credit scores by making timely payment of bills and clearing off debts.

Know the Real Cost of the House: Although the actual price of the house may appear to be the 'real amount' to a first time home buyer, additional costs like interest on mortgage loan, the PMI (if it has been obtained), the closing costs all add up to a sizable amount. Additional costs for repairs and maintenance could also add to one's monthly expenses. As per standard guidelines, expenses involved in buying a house should not exceed 20% to 35% of total income. Leaving some room in the budget to meet any emergency is a prudent way of managing finances.

Have Home Inspection Done: With foreclosures a common problem due to the current financial crisis, buyers may be able to find houses for sale at really low prices. However, it is best to ensure that the deal is actually as good as it seems. Get a home inspection done by certified professionals. This helps you to know if there are any faults in the house. Accordingly, you could assess if the house is worth the cost quoted by the seller and also determine your expenses on repair and maintenance.

Research on Homes: After you have set your finances right, make a list of features you are looking for in a house. Be sure that the house you are buying is big enough to meet all your future needs, in case you have additional members in the family. Take good note of the area and the neighborhood as these aspects will play a crucial role in determining the price of the house in case you want to sell it in future. A realtor's expertise could also be used in searching for a right house and evaluating those that have been shortlisted by a home buyer. However, this means additional expenses to the cost of buying a house in the form of the realtor fees. A good way of evaluating houses on sale is to research and compare prices on various websites that have a listing of the properties.

It is always good to weigh one's needs and have one's finances in place before buying a house. Making a checklist and having a step-by-step approach for making that big financial investment will make buying the first house a hassle free experience for any individual.