Purchasing a home will most likely be the largest financial investment you make. For first-time home buyers, it is a tremendous accomplishment, but not without its fair share of problems.
To be specific, financial problems.
Many first-time homebuyers get emotionally caught up in the home buying process and rarely do they think about the various financial aspects of buying a home and how they affect the bottom line at closing and beyond.
Contingency clauses are your friend
Contingency clauses shield you if the loan falls through, if you lose your job, or if the appraisal costs come in over the market value. Should one of these happen, you get the money back used to insure the property, also called "earnest money."
Without this clause, you can lose the money and still be obligated to purchase the home. There are several possible contingency clauses. Make sure to talk to your real estate agent about the clauses necessary and specific to your situation.
During your search, you might find a home that seems amazing at first. Afterward, as you walk through the house, you discover issues: the floors squeak, there is mold in the toilet, the kitchen island is off center. After walking through the home, you see the house was touched up to pass a cursory buyer walk-through.
Pay a home inspector trained to look thoroughly at the property. They will uncover issues you wouldn't think to look for during your walk-through. This also saves you thousands in repairs down the line in the event the home needs more than routine repairs. If there are issues that arise in the inspection, deduct repair expenses from your offer, or better still, get the sellers to cover repairs before the sale or pay for it at closing.
Shop for the best mortgage
This is important as it stands to save you several thousands of dollars. Many first-time buyers go with the conventional 30-year mortgage, but you can save lots of cash in the future if you're able to go with another type of mortgage. An example is selecting a 15-year mortgage. You pay a higher monthly premium but will get the house paid off with lower rates of interest in less time.
Avoid PMI if at all possible
In addition to the laundry list of homeowner expenses, if your down payment is less than 20% of the selling price, you might wind up paying another fee—private mortgage insurance (PMI)—that's insurance for the lender in the event you default on the loan. This can mean thousands over the life span of the loan period. If it's possible to do so, save and put the 20% down. You will avoid PMI and probably get a better interest rate.
Examine your HOA contract
Homeowner's association (HOA) fees are dependent upon on the amenities/services offered and your geographical area. These HOA fees can run from $50 per month to several hundred dollars per month. This is in addition to your mortgage, taxes, and insurance.
You can see how this would get expensive if you don't budget appropriately for the final costs of the home because it's easy to overlook the attached HOA fees. Pay attention to this detail, as it can be a budget buster.
Do the necessary research to understand how much house you can afford—outside of just mortgage, taxes, and insurance. Understanding your local market conditions as well as the above-mentioned money saving tips will help you get into a position to afford the house of your dreams while keeping your budget in line.