It’s been almost 10 years since I bought my first home. I remember it being a whirlwind of information. Most of the information I got was from friends and family. There weren’t few personal finance blogs out there and I didn’t know they existed. Here are a few things that I knew and a few things that I wish I had known at the time:
First-time Buyers Can Get Special Terms
It can be tough to save up a big down payment. As a landloard, here’s something I hope my tenants don’t know. FHA loans may be worth looking into. Their down payment can be as little as 3.5% of the purchase price. (Interestingly, other countries have similar programs. For example, on the other side of the world, Australia has a first home buyer account that requires a minimum of 5% downpayment.)
Get a Friend or Family Member to be Your Agent
It’s tough to know who you can trust out there. Your agent is supposed to be on your side, and I’m sure that most of the time they are. However, if they are your friend or family, you know they really have your best interests. I was lucky to have a friend who was a real estate agent and another who was a real estate lawyer to help with the closing. It was two fewer things to worry about.
Get a Home Inspection
The above might be the four useful words of advice I can give. It really is some of the best money I’ve spent. To know what needs repair is vaulable in itself. Being able to leverage it to get the previous owners to fix it or give you a lower price is gold.
Don’t Over Extend Yourself – Know the Key Ratios
When I was buying my first home, I don’t think anyone told me about a couple of key ratios until I applied for lending. Typically lenders like to see a debt-to-income (DTI) ratio of less than 36%. They want to know that you’ll be able to pay the loan back. Additionally, you’ll want your housing payment to be 28% of your income or less. Some suggest it can be more, but I like to be conservative. Plus, the lower your housing payment, the more money you can save to build assets.
Don’t Buy a Home in 2004
How’s your time machine working? Mine has a few problems. When I get it going again, I’m going to go back tell myself not buy a house at the top of the market. Yes, that seems like a simple solution in hindsight. If your time machine is broken like mine, I’d simply suggest keeping up with the market. When you see a bunch of years of double-digit price appreciation, perhaps it is time to reconsider buying.
Any readers out there buy their first home recently? Maybe you have some tips that are fresh on your mind. Care to share in the comments section?