When the idea of buying a home first came to mind, years ago, I set some conditions to meet first. I figured that I would know I was ready to buy my first house after I had completed these things. Whether or not the idea was feasible didn’t matter, since I had nothing else to go off.
Understand the Home buying process
If I was going to buy a house for the first time, I had to know what was going to happen. There is so much more to buying your first home besides picking out the house and signing the papers. If you don’t know how it all works before jumping in, then how will you really know what’s going on?
I’m not the best at doing research, yes…even with the Internet and all the information it contains. So I still haven’t looked into the home buying process even though I should, even for the sake of common knowledge.
Saving a down payment
Lots of people wouldn’t even consider buying a home unless they already had their down payment saved up. How much to save up…5%, 10%, 20% or more? I didn’t really know, which could be one of the contributing factors for not starting to save money at all.
Sometimes you can get into a house with no down payment at all, but I’m sure there has to be a catch somewhere, right?
Adjustable Rate Mortgages are the Devil
The first time I ever heard about an adjustable rate mortgage, I thought it was the scariest thing somebody could do when buying a house. What if the rate soars crazy high and you can no longer afford to keep your home? Adjustable rate mortgages are the devil, and I will never get one.
Going from apartment renter to a home-owner is a huge change. What different expenses might creep up? You never really know for sure how much it’s going to cost until you jump in. It’s important to have some financial security, just in case something big goes wrong.
Usually the home inspection can give you a good idea of what needs replacing and work done, but other stuff can still pop up. Bad things tend to happen to me a lot, so I always wanted to have at least $10,000 saved up to feel financially secure.
The last thing I would want is to jump in to home ownership unprepared and lose the house because we didn’t have money saved up to cover something big. Besides, a $10,000 Emergency Fund would be nice with or without a house.
Credit Score and Interest Rates
It’s not a big secret that the better your credit is, the better your interest rate will be. That doesn’t just go for buying homes, but works for: credit cards, personal loans, auto loans and probably other stuff too.
Thirty years of interest and payments really adds up, so the interest rate makes a huge difference in monthly payments and the end cost of the home.
Thankfully, both my honey and myself have great credit now—at least that’s what Credit Sesame says. While they provide access to your credit score for free, they don’t give out your FICO score. Still though, it’s great for working on your credit and can be close to your FICO score. The FICO score is the one that most, if not all lenders use to determine your interest rate.
While we have made a ton of financial progress the last couple of years, we’re still light years away from meeting all these conditions. Right now, I’m 1 out 5 on my previous home buying prerequisites. Plus I know just about nothing about actually buying a home. Am I still sticking to these? Do they really matter? I’m not really sure yet. At least we already have an idea how much house we need, no need to buy more than we’ll actually use.
How did you prepare to buy your first home?