The idea of buying your first home definitely brings nothing more than waves of emotions. It’s a mixed reaction of excitement and a frightening concept that you can’t just ignore- and in this case, both responses are appropriate. When one decides to purchase their first home, that’s the biggest decision they ever made, considering owning a home is one of the biggest lifetime investments one can commit to. Indeed, you have to give it thoughtful consideration and set your mind this is what you really want.
The good thing is, that you aren’t alone, and more than a third of all Americans are considering being homeowners in the next five years. Though it’s only you as an individual who has the capacity to determine if you are up to the task of owning a home, we, on the other hand, will help you evaluate if you are financially capable of achieving your dream of owning a house.
Equipped with the correct information and setting your mind the right way, you can be sure nothing will catch you by surprise. Remember, millions of Americans have achieved the dream of owning a home, and why not you? It’s possible to remember that.
Financial readiness for first time home buyers
Have you been in a pilot’s cockpit? My guess is as good as mine, which is no, but I am sure you have watched a film where the pilot prepares to take off, and in most cases, there are dozens of switches, so many buttons to press, and all done in chronological order since every button serves a purpose. Well, it might look overwhelming to you and me, so complex to handle, but it’s second nature to them. They have been trained and mastered the skill for the task at hand.
We can assure you in your quest to purchase your ideal home; our financial section has the proper guidance just for you to help you to take off just like the pilot.
The realities of buying a home
The chances are high that you are a rental, and you are used to spending a small chunk of your money every month to get a roof over your head.
When you’re a first-time home buyer, you should know that taking the mortgage route isn’t any different but let’s be honest and not fool each other- it’s not a one-to-one comparison, though.
When you are a homeowner, it comes with responsibilities and extra expenses that a renter doesn’t incur. Think about this, what if the pipes break down, or if they have mold? How about the sheets become corroded? Or the bathtub isn’t working? Well, as a renter, the landlord is a phone call away; however, for the homeowner, this will be among the things that break out of the checkbook.
When you aspire to be a homeowner, you have to accumulate savings to achieve this objective. Assume the house of your dreams is going for $400,000. Well, that needs a solid plan and even extra cash of about $40,000, which might come in handy to cushion you on the first-year expenses, which in most cases are staggering.
How much is the down payment
Many first-time homebuyers wonder about how much down payment they require to close in on their first home. In your matrix of readiness check, this should be the topmost in the checklist since it’s the largest upfront bill you have to take care of.
There is a universal rule that says you need to have about 20% of the down payment for you to purchase your dream home. But let’s be realistic, very few first-time aspiring home buyers make the cut for this mark. Most of the home buyers put less than 10%, others even less than 5%. But that’s not all you need considering you need to add the closing costs and the additional expenses that come with buying a home; we can conclude a prospective buyer needs a much larger chunk of cash.
When looking at the down payment and considering how much you need to cash out, you need to be aware of the actual cost of the house. And talking of the cost of the house, remember the down payment will also be determined by your potential lender even though you might have a glimmer of a price range because they do have their own ideas of the kind of a house you can be able to afford. When you get prequalified for a mortgage, that’s the time the lender happily tells you the limits of your borrowing capacity.
Assuming that you haven’t yet achieved your savings to qualify for finance on your first home, you need to plan on your finances. The best place to start is making a budget that includes your inflows and outflows, and this will tell you if you aren’t there yet, then how much time do you need to beat your savings markup?
Depending on where you live and some other qualification factors, you can get a down payment assistance program but always remember even though you might qualify, you still have to have some money for unforeseen circumstances such as disasters and surprises.
The debt-to-income ratio that many lenders use to calculate has two different measures that you can use. These figure estimates do gauge how much one can comfortably channel towards paying their mortgage balance each month and in addition, the expenses that tag along with a mortgage. Mortgage payments are what is known as PITI.
- Property Taxes
To calculate the debt-to-income ratio you need to divide
- The front-end debt-to-income ratio: is the projected monthly payments towards PITI and then divided by your gross pretax or gross monthly income.
- Back-end debt to income ratio: the current debt loan which may include (loans, student loans, and credit cards) plus the PITI and then divided by your gross monthly income.
Here’s an example:
A good example of calculating front-end DTi and back-end DTI is
The gross monthly income of individual A is: $5,500
Credit card minimums: $200
Auto loan: $300
School loan: $300
To calculate the front-end DTI you should
2,000 multiplied by 100 = 200,000
Front-end DTI is 36.36%
To calculate the back-end DTI you should
You should add $300+ $300+$200+ $2000= $2800
? % = $2,800
2800 multiplied by 100 = 280,000
280,000/ 5,500= 50.9%
Back end DTI is 50.9%
In this example above, the front-end DTI, which is 36.36%, and the back-end DTI, which is 50.9%, are within the accepted ranges.
When the front-end DTI is within 25% to 30% or lower than the figures stated, they are the ideal metrics to qualify for conventional mortgages and also lower the down payments to affordable ranges.
When the back DTI is at 30% to 40% or lower than the metrics quoted, then it becomes an ideal borrowing condition; however, when you have a high credit score, then it can be accepted even to 50%.
This tells you, that you should aim for the numbers to range between 205 and 30% and away from the 40% upwards since doing so will put you in a better position to receive better terms such as reduced interest rates on the mortgage and lower down payment.
Your credit score is a very important metric to the lender and determines the kind of terms a lender would offer you, whether there favorable or not. A credit score is a measure used by lenders to gauge how honest you have been in recent years in your borrowing with other lenders. Do you pay your loans on time, or have you even defaulted? If, in this case, you have been paying your loans on time and you haven’t defaulted on any of them, then your credit score is good or rather excellent.
Lenders use the credit score to determine how much they can be able to fund you and what interest they can charge you towards your loan that you comfortably able to repay. This metric is very important to first-time home buyers, and they should pay attention to it.
The FICO score that allows you to qualify for a minimum down payment is 600 and above, and that tells you if your score is below that figure, then your chances to qualify for a housing loan are minimal. However, always check housing finance pages since you can find so many options on lenders that fit within your credit score.
Assuming your scores aren’t where you might want them to be, then you have to go back to the drawing board and focus your energy on how to raise that low credit score you got.
Think about this for a second, have you been able to repay those student loans and the credit card loans you have been taking? At the moment, are you able to build a contingency fund? Assuming your answer is yes, then how fast? Do you have a crisis or rather an emergency fund? You might be a few years away from getting ready to own your first house, but that shouldn’t scare you since today, you can have your goals aligned towards achieving that goal. The runway can be lit for you, but it’s your plane to fly.
When you’re a first-time homebuyer, you should focus your goals towards broader savings. Before you embark on the journey of owning your first house, your budget levels should be the ultimate guide to your goals. Ask yourself these important questions, such as whether you have enough money upfront to purchase a house in your price range, and don’t forget to include all the closing costs. When you closely evaluate your accounts, are there enough savings left that cover some myriad expenses that are normally incurred by new homeowners when transitioning to homeownership? An out-of-the-blue $3,000 pipe clog repair shouldn’t be a threat to you in your ability to repay your mortgage at the expected time.
Mortgage 101 for first-time home buyers
To start with, we need to give you a summary of the core structures of a mortgage. Just think of a scenario where the lender generously gives you a huge loan and, on top, you are given the best interest rates in town, and in addition, you have ample time to repay. Do you think they are generous to you, or it’s the kindness of their hearts?
The answer to that query is no, and it’s not a favor.
You need to understand that the enormous loan you have been given can be paid back by the house you just bought since the home serves as the collateral of the money they lend you. If you fail to pay your monthly payments and at some point, you default paying, that house will be repossessed, and in a second, you’re a renter again or even homeless. Mortgages do carry low interest rates, and they are very nice deals but do not make the mistake of assuming the house can’t be repossessed.
Mortgages, in most cases, offer very favorable terms, such as they have longer repayment periods, and fixed or variable interest rates, and might require a small down payment or require huge down payment depending on several factors. However, regardless of these scenarios, that house you’re buying is collateral. Taking a mortgage is a big bill that you need to pay for a long period of time, so you rely on your income strength to make yourself appealing to a lender.
Every month you should be ready to pay a bill towards that mortgage you took, and don’t forget that you also need to foot the PITI bills as well, so get ready.
What a first-time home buyer should be aware of about mortgages
Conventional vs. non-conventional loans
There are conventional mortgage loans that usually require a huge or a sizeable down payment since they aren’t insured by the federal government. On the other case, non-conventional loans require down payments of 10% or lower, and they are insured by the federal government, thus making them the go-to loans a first-time homebuyer should focus on most.
Remember that if you go for a conventional mortgage that might have less than 20% down payment, you must have private mortgage insurance (PMI) and retain the PMI until you, as the buyer, accumulate not less than 20% equity in the house.
Conforming vs. nonconforming loans
There are also conforming mortgage loans that usually are below the max allowed by government-backing entities such as Fanni Mae and Freddie Mac. The mortgage loans that are above the federal maximum and are maintained by the housing authority are known as non-conforming loans.
During the year 2020, the maximum loan for conforming loans was $510,500 but was subject to certain areas as there were areas where the maximum conforming loans were $765,000.
You can consider taking a jumbo loan, but that’s a conventional loan whose amount is above the federal conforming loan limit. If you’re a first-time home buyer and you’re considering taking a jumbo loan, you will be required to have assets worth at least 10% of the home purchase price, your income should also be higher, as well as your credit score.
The federal government doesn’t offer mortgages to its citizens, but the government insures these mortgage loans, which is a good thing to the lender since it’s less risky to the lender. A government-backed loan doesn’t have tough terms on conditions such as high credit scores and huge down payment figures; thus, these types of loans are the ideal options for first-time homebuyers.
When you’re a first-time homebuyer, government-backed loans are the most attractive option to go for. The minimum credit score for a government-backed loan is 580, and all you need to put as the down payment as a first-time homebuyer is just 3.5% of the house price. Remember that FHA-backed loans do vary by state or county, which start at $330,000 all the way to $770,000.
There are also other government entities that back mortgage loans, thus the Veteran Authority (VA) and the U.S. Department of Agriculture (USDA). For instance, when you have served as military personnel, the VA loans do not require any down payment, and the closing costs can be settled by the seller or rolled up into the loan itself.
USDA-backed loans are also very attractive to go for, but they are found in rural areas where there are low- and middle-income buyers, and in addition to that, they require no down payment when you have made it to the cut of income limitations.
Fixed-rate loans are the most popular and the most common mortgage structure. When you take a fixed-rate mortgage, everything is fixed, including the interest rate, which will never change over the lifetime of the mortgage loan. Nearly all the fixed mortgage loans out there have a repayment period of 20 years or 30 years. The good thing with fixed-rate loans is that you’re able to tell exactly how much you’re expected to pay toward your mortgage every month for the next 20 or 30 years.
If you have a plan to stay and live in the house you are planning to buy for the next 10 years, then as a first-time homebuyer, the fixed-rate loan is the best mortgage loan to go for. On the flip side, building equity might be slower compared to variable-rate loans, and there are higher interest costs in the long run, but there is some assurance that the interest rate will never fluctuate to your disadvantage.
Variable-rate loans come with a fixed interest rate, and it’s lower than fixed-rate loans and has an initial period. As a first-time homebuyer who thinks they might move to another house after a period of time, the best mortgage loan to go for is the variable rate mortgage loan. On this angle, you project just after the variable phase of the interest knocks in then you will refinance or sell your house. By doing this, no market interest rate fluctuations will surprise you as the interest payments might spike higher to a level you can’t afford.
Remember, federal government-backed loans are offered on variable-rate terms and fixed-rate terms.
The down payment
The down payment subject is among the topics every first-time home buyer should understand; that is why we have touched on it again for you to have a clear insight on the subject. We told you earlier that there is no bigger check you have ever written before than the down payment of a house; well, we emphasize this again as it’s the truth.
The federal government-backed loans and a good example is the FHA allow first-time homebuyers to put a deposit that is less than 10% of the total house price. When you reach the minimum qualifications to get an FHA loan, you are required to put just 3.5% down payment of the total cost of the house.
In most cases, first-time home buyers do consider the FHA-backed loans because they are attractive in terms of disbursement. The part that we dint disclose to you is that the government doesn’t just insure these loans for free as they require you as the first-time buyer to purchase two types of mortgage insurance that’s ongoing and upfront.
- The upfront mortgage insurance which is better known as the upfront mortgage insurance premium (MIP) range from 1.3% to 1.5% of the total cost of the house your about to purchase. Usually, this insurance it’s rolled to the mortgage itself, which in return raises the final mortgage balance.
- The ongoing mortgage insurance is about 0.45% to 1.05% and is payable every month as part of the mortgage. When you pay off the mortgage, the premium decreases each year. This mortgage insurance is paid off for a minimum of 11 years as that is the requirement of FHA-insured mortgages.
Remember that having a down payment shouldn’t settle your mind that now you have made it, and you are good to go. No, remember you need to have 2% to 5% of the total house purchase price somewhere to settle the closing costs and also have 1%-3% set aside for purposes of a contingency fund.
Our recommendation to first-time homebuyers on this is to have at least 10% of the total house price even if you have a low down payment option on the table just for security purposes have at least 10% of the total house price.
Getting ready for the purchase
This is how a dream borrower should look in the eyes of the lender. Are you one?
- Credit score should be at least 700
- Debt to income ratio is below 35%
- Renting history is so goo there is no missed months or such hiccups
- They have accumulated about 10% in savings for the total house purchase price
That looks scary, isn’t it? But don’t worry, you don’t have to be a lender’s perfect dream purchaser for you to qualify for a mortgage since there are options to go for. Among the options, you should look at is the FHA-backed loans, which only require you to have a credit score of 580 and only need about a 3.5% down payment.
If you’re looking to get a home as a first-time homebuyer, you need t to be at the mark below 31% of the front-end DTI which will automatically qualify you for a standard mortgage. Your back-end DTI should be below 42% when seeking approval from FHA backed loan. Yes, we highlighted that there are cases where back-end DTI can be above 50%, but they do come with a price of higher interest costs and also insurance premiums.
Equity building can it be done immediately?
This is a question many would answer with a yes or a no option, but assuming you would say yes and you feel you’re almost ready to become a homeowner but have you done an evaluation to yourself? What do we mean by self-assessment? You have to inventory your life.
Take a closer look at your career path? Does your career make you mobile? Is it possible in the next few years, you might relocate? When you take a mortgage, it may take years before you are able to sell your home and scoop some profits from it.
Building equity in a home isn’t a fast-tracking process and takes years which is something first-time homebuyers would see as a slow process. When you take a mortgage loan, most of what you’re paying on a monthly basis will shift to interest, not on the principal amount. Assume something has come up sooner than expected, and you have to relocate to a new location? Well, that simply says you have less equity, and if you’re expecting equity, then that’s a fool’s errand.
Life is unpredictable, and today things might be stable, but tomorrow the circumstances might change. The point is before you decide to buy your first home be as diligent as possible.
Pre-approval (or pre-qualification)
Just before you embark on a journey to search for an ideal home, you need to be sure that you have the capacity to buy a home, and you need to guarantee your house agent and all the interested parties that you have the ability to do so when they look at your income, budget and the credit score. To prove to yourself and third parties, you need as a first-time homebuyer, to be pre-qualified and pre-approved.
When a housing agent who is working on behalf of the seller sees that you have been pre-qualified, they will have the energy and motivation to get you an ideal home since they know you will most likely be approved for a house loan. That means the offers your given carries in them some weight, and therefore they’re considered more serious than those that have no pre-qualification document.
Pre-qualification and pre-approval are good projections and guarantees that a lender will approve a loan for you. The pre-qualification phase is what comes first, then a more enhanced process follows that’s the pre-approval process. So before you get to hit the road and start offering seller’s offers, aim to have a pre-approved document.
The pre-qualification phase entails your net worth, so here you submit all the financial records that determine how much you are worth. Assets, income, current debts as well as the credit score all that add up to your total net worth.
Just don’t have some bad loans that you aren’t servicing and if that’s the case most likely you will get the housing financing your seeking. Many lenders will ask you to submit these documents over the Internet, and they will happily reply to you with the results.
Getting a homeowner’s insurance
One of the most important steps that many first-time homebuyers skip in the first phase of getting a house is shopping for homeowners insurance. People do search for this the last step before closing the deal, and that’s a huge mistake since it’s a rushed decision and not well thought out.
It’s customary and traditional that many lenders have their preferred insurance provider, but that’s a business, and in many cases, what they have pitched to you about might not be the best deal in town. You might be surprised that the company that is handling your auto insurance is the best company that can offer you a good deal on home insurance.
Did you know that no insurance would want to see you with a record of claims? Well, now you know. Insurance companies favor clients that have low or no claims history, and it doesn’t matter the circumstances, whether it was an auto claim or a rental claim. When you have a clean insurance history, you can save around 15% to 25% of the total cost of a first-time homeowner’s policy. Remember that an average home insurance policy will cost about $1000 to $2000 every given year, so such a saving might come in handy.
When you are a first-time home buyer, and you have plans to buy a home later in the future, you need to have a renter’s insurance policy now. They are almost available everywhere in the United States, and they are as cheap as $1 per day. The angle here is to have a couple of years of claim-free history as a renter, and this will pay you off when you decide to buy a home later in the future.
Homeowner policy features you need to be aware of
When you’re a first-time owner, you get confused with the difference between a liability protection policy and a property protection policy.
Property protection is a very vital policy, and nearly all homeowner’s policies have this inclusion. It protects the physical structures of a home and the attachments such as the electrical, house appliances, and plumbing. The dwelling insured value protects the property in case it is destroyed, and it is not limited to these only its wider extending to sheds and garages.
Liability protection on the other hand shields home owners from injuries or claims that may arise from persons or things that may be injured while under the homeowner property.
The homeowner’s policies differ with locations since there are areas that are more prone to natural calamities, and thus these policies are more expensive than the average national quotes. These kinds of policies go by names such as “endorsements,” and “additional property coverages,” and a lender may enquire about them or may not enquire about them.
Always read very carefully the initial mortgage offering documents that are supplied to you before pending your signature, as many people do. If you find a detail you are unable to elaborate on yourself contact your lender directly for clarification purposes without fail.
Getting the right home and making an offer
Assume you have found your ideal home, and now, based on the details you have discussed with the house agent, you feel you are confident to talk to the seller and offer the seller a quote. Bargaining is a word flowing in your blood, and you feel you can go a couple of rounds with offers and counteroffers. That’s a natural feeling, especially when you have spotted the home of your dreams. This is a home you have fallen in love with, let’s say the first sight of it.
Hold on, do not let personal feelings and attachments get into the way of a home-buying process. Don’t get too excited too early; wait until the keys are in your hands, and now you can pop the champagne.
When you’re a first-time home buyer, you should expect to fall in love with a couple of homes, and you should also expect to make more than one offer before one is fully accepted. Have the mentality that it might be rejected or it might be accepted.
The house agent you’re dealing with should be able to pinpoint you in the right direction on matters regarding earnest money deposit, which in most cases is required by the seller of the home, and it’s offered in good faith. Earnest money serves as a guarantee or a sign to the seller that as a buyer, you are serious about this house, and you want it.
Earnest money is about 1-3 percent of the total price of the house. This money isn’t deposited into the seller account, but it might be deposited into the seller’s agency, and in most cases, it’s returned to the buyer once the sale goes through or does not. It’s usually held in escrow until the closing day of the home purchase.
When your first-time homebuyer, among the things that will wreak havoc in your mind and stress you a little bit, is the home inspection process. The major reason why a home inspection is regarded as important is because it ensures that’s all the structures and the major systems in your prospective home are working as required. You can expect reports from the basement area, electricals, plumbing, roofing, fireplaces, and every other corner of the house.
Another area a home inspection should cover is some harmful elements such as asbestos, mold, radon, and other fungal species that might be costly to deal with once you vacate to the new home. The house inspector usually follows a checklist and inspects everything that needs to be inspected just to make sure what the buyer is buying has no problems that might emerge later on.
During the inspection, you need to show up physically so that you are able to ask questions and pinpoint what is not so clear to you. It would be best if you also heard the inspector reviews and suggestions, which can give you a rough idea of the magnitude of the problem at hand. Make a note of the systems that are none functional so that you are able to tell what needs repair. Remember, if you are seeking finance from FHA, then you should expect a more comprehensive inspection.
One of the things not to fall for is assuming a house is all good just because you saw the “ pre-inspected” label. Many first-time homebuyers fall for this and do not ask for an independent inspector service just because they trust the seller. We can advise you not to be convinced by anyone that you don’t need to get a home inspection. Remember, this is a lifetime investment and one of the most expensive ones you will ever undertake, so paying for private home inspection services should be nothing to gamble about. Due diligence is essential, or you might regret it later when you have settled in and discover what you have bought is a shell of a home.
A home inspection will cost you about $200 to $600, depending on the square feet of the house.
How to deal with inspection issues
Good, you made it to the inspection and gathered invaluable information regarding the house. Now, what have you gathered? Is the house structurally sound? What repairs are needed, and how much will they cost?
Now that you have been equipped with all this information when you find the cost of repairs is way too huge, then you should renegotiate the house since these repairs will basically lower the value of that property and will cost you more money to repair them.
You shouldn’t ignore repairs, and if you have already placed a bid, you can drop the bid and renegotiate with the inspection report now being a factor.
One of the options to resolve the issue might be to renegotiate the price with the seller or request the repairs to be done prior to commencing payment or a reduction in the mortgage for the cost of the repairs that the buyer will incur.
Remember that you only have a two-week window before the closing process begins, and failure to convey your grievances on the subject of the inspection to the seller may risk your earnest money.
Almost no time to close on your new home is here.
Closing day is almost here, and you feel so excited; well, we know the feeling, and that’s why we advise you to cross-check all the pertinent documents one more time just to be 200% sure. This is the moment to ascertain that the closing cost is within what you can afford and what you projected.
One other document we shall advise you to review once again is the closing disclosure, the promissory note, full mortgage loan documents, and the initial escrow disclosure document. Just certify that what was served initially to you is what is reflected currently, and none of the terms have changed.
Loan Estimate and Closing costs
For a first-time homebuyer, you can expect to spend about $4000-$8000 on the closing costs, and for those who want to buy in metros where an average home price is about $400,000, they can expect the closing costs to be higher than $8, 000. The closing costs range from 2.5% to 7.5% and also vary based on factors such as the lender you choose to work with, the state where the transaction occurred, and the type of mortgage.
When the lender receives the mortgage application, they should provide the borrower with a loan estimate document (LE) within three days from the date they received the mortgage application. The loan estimate document will reveal to you as a first-time homebuyer the closing costs and the total breakdown of the loan. The lender should also provide the buyer within three days to the closure date a document called the closing disclosure (CD), which has all the information regarding the cost estimates and what will be in totality the closing costs. You can also tell by looking at the document if there is any difference between the final closing document and the loan estimate.
In case you find major changes when you compare the loan estimate document and the closing disclosure, contact your lender and have them explain to you what brought the discrepancies between the two documents.
On lowering closing costs
We do know how expensive the closing costs can be and the urge to lower them since it is a big bill to foot—considering how hard you have worked on saving then stalling on costs, is not a so-good idea.
The good news is that you can negotiate the closing costs, and did we mention being a first-time homebuyer, you have the advantage of opting to include the closing costs into the mortgage loan. However, this shouldn’t be the route to take, specifically the part where you request to roll up the closing costs into the mortgage. Why? Well, it will be more expensive to you in the long run as you will end up paying ten times more compared to what you would have paid upfront. The 10 times more will be through the higher interest rate and higher interest payments incurred.
Heard of points and discounts?
You might have heard of mortgage points as you research more in the real estate blogs, and these can best be described as the amounts that are equal to 1% of the principal amount or the mortgage. Every % is a point. When the lender calculates the origination fees and the closing costs while they process your loan, they do so using the points. These are the points they offer to borrowers as discount points.
When you first-time home buyer, you can be able to lower your interest rate by buying the discount points from your lender. This is possible by paying more money during the closure and the down payment phase. Mortgage discount points also can be available to you based on which lender you approached, the type of mortgage you took, and your creditworthiness.
One discount point you as the borrower purchases your interest rate will drop by 25 basis points which is equivalent to 0.25%.
Just to enlighten those who might be considering going for the adjustable-rate mortgage, discount points only apply when the interest rate is fixed, and when the mortgage interest changes, then the deal is off.
Lender credits what are they?
If you want to lower your upfront out-of-pocket costs and pay much more money over time and little money at the closing, you can be offered what we call lender credits. However, this is a very dangerous route to take since it’s an expensive route to go in the long run unless you don’t have so much initial capital.
We can’t help you to avoid origination points since this is a fee charged by the lender for coming up with and originating the mortgage loan. However, if you do shop around, you will find lower offers on origination fees since it vary from one lender to another. The good thing with origination fees is that you can pay in a lump sum or over time. Also, note that the lender cannot raise the origination points, and if they do, they have committed an offense under the law.
First-year tax prep
You should be aware that the short-form filings are no more, and now it’s the time for long-form taxes considering now you are a homeowner. Moving forward, you will start itemizing home-related deductions, and you might find there is more benefit in the exercise.
You should also pay close attention to the annual 1098 form, which breaks down the interest paid towards your mortgage.
Remember before you fill out your taxes now that you first a time home buyer, you need to learn how to fill the tax form correctly, and the best part to start learning is the IRS publication 530.
One of the things one should note is
Property tax is deductible in most states
Mortgage interest is deductible
Looking at IRS Publication 530, origination points are subject to be deductible.
Don’t count depreciation, or insurance payments as deductibles and as closing costs.
Buying a home is the best decision—but owning an investment is better
Now that we have come to the end of our first-time home-buying guide, we feel we need to end it with a word of caution. Buying a home is one of the most significant decisions and investments, moreover a commitment of a lifetime. It’s always thoughtful to take a thoughtful review of everything that’s on the table since every decision you make will definitely affect this life-changing decision you are about to make of purchasing a home.
Taking the decision to become a first-time homebuyer means you have to forego some lifestyle expenses that you could have afforded before you made the decision to become a homeowner. Foregoing some of the things you were doing before will obviously affect you psychologically, and your family as well, and it’s a lot to take in. That’s a topic you need to think about deeply as you make that decision.
When you decide to own a house, you will certainly be investing, but for the very first few years, that feeling of being an investor will not kick in, and in most cases, you will feel you made the wrong decision, and the decision you took is a burden. Don’t forget every month, you have to commit some chunk of your money towards servicing your loan, and that will bring constraints to your financial status.
The journey of buying your first home certainly is filled with emotions, and as earlier said, one has to be nervous and excited at the same time. What’s most important is always to keep your expectations in check and learn how to absorb shocks as they arise.
A good example is people who venture into home buying processes with the intention to rent the house or flip the house later. When you invest in a home with such high expectations to make some quick turnaround profit, things might not work in your favor. And on an interesting scenario that we shall caution you against is buying a house to impress or compete with anyone, it might turn out to be messy.
We all have expectations, there are life expectations, family expectations, and career expectations, and over time these expectations change. You should never attach any expectations to your first home-buying process so that in the future, you don’t find yourself in a position where you are resentful since things might turn out to be different than you expected.
Owning your first home should always be the best decision one can make. Now that you are armed with vital information on what it’s entailed in buying your first home, we are sure you can be able to make a sound judgment. We wish you all the best as you kick off your journey to become a homeowner.