If you’re looking to buy your first home there are a lot of things you should take into account, but also a lot of advantages available to you. Take a look at our guide to buying your first home for more information.
Buying a home is an instance where you’re most going to hear the incredulous phrase “in this economy?” and that’s no surprise. Buying a home is difficult. The housing market demand is rising while supply is dropping, and a widening wealth gap is causing less people to be able to afford a comfortable home.
And there’s actually buying a home. The process is long and arduous. There are many steps, tasks, and requirements. But it will be well worth it when you get those keys. It’s a place you finally call your own, and a good measuring stick against what can let you say you’ve made it. If you have no idea of where to start, take a look at our guide on being a first-time house buyer.
First-time buyer advantage
Being a first-time home buyer, it’s unlikely your wallet has emptied so hard and so fast, which is why there are a number of helpful aids available to you to ease the process a little. You will have access to state programs, tax breaks and federally backed loans if you don’t have the minimum down payment, which is usually 20 per cent of the purchase price of the property you are looking at.
However, there are requirements that determine whether the US Department of Housing and Urban Development considers you a first-time homebuyer. These include: if you are an individual who has not owned a principal residence for three years, if you have owned a home but your spouse has not, if you are a single parent who has only owned a home with a former spouse whilst married, if you are a displaced homemaker who has only owned with a spouse, if you are an individual who has only owned a principal residence not permanently affixed to a permanent foundation, or if you are an individual who has only owned a property that was not in compliance with state, local, or model building codes.
Things to consider
Before you go house hunting, there are a few things to consider to determine if you are even in a position to buy. Think about what your financial health is like. Make sure you are prepared for the initial cost, but also the ongoing maintenance of your home. Look at your savings and make sure you have at least three months living expenses in there. Review your monthly bills and use this calculation to figure out how much you can allocate to a mortgage. And finally, check your credit. Usually, to qualify for a home loan, you will need a good credit score, a history devoid of missed bill payments and a debt-to-income ratio that doesn’t exceed 43 per cent.
Homeowners insurance is also something to consider when writing up a hypothetical budget. It protects your home and possessions, should the worst happen and is usually a requirement of gaining a mortgage. Homeowners insurance covers three main aspects: damage to the interior or exterior of your house, personal liability for damage or injuries and hotel or house rental while your home is being repaired. Policies typically cover damage due to fire, hurricanes, lightning, vandalism, and a few other options.
You should consider your options for insurance and add that into your potential budget. You can find quotes by searching for homeowners insurance near me.
First-time homebuyers can take advantage of a wide variety of options offered to them to help get them into a home. Most of them offer minimum down payments as low as three or five per cent and some require none. For example, if you meet the requirements above you can gain a Federal Housing Authority-backed mortgage or be added to a US Department of Housing and Urban Development resource list. The HUD won’t offer grants directly to individuals, but it does offer IRS tax-exempt grants designed for first-time home buyers to organizations.
Your IRA can offer you a withdrawal of up to $10k if you’re a first-time home buyer without paying the 10 per cent early withdrawal fee. Therefore, a couple could withdraw as much as $20k to put towards a first-home purchase. However, you must repay the money within 120 days you will get the 10 per cent fee and you will owe income taxes on the withdrawal.
Many states offer financial assistance with down payments and closing costs. Some even offer expenses to repair or improve a property to first-time buyers. To be deemed eligible, these programs will look at your income and the purchase price of the property.