Home ownership. The American Dream right? It takes a lot of hard work to get there for most of us and when we do, it’s probably one of the biggest decisions we make in our lives. Technically we’ve been homeowners for about 8 years, but we bought our first home via a private contract instead of a traditional bank mortgage. We went that route for two reasons, our credit was just beginning to recover from filing bankruptcy and that home was an older single wide mobile home in a park so most traditional banks would not have financed it anyway. It wasn’t glorious but it was ours.
Fast forward a few years and we had bigger dreams so we upgraded to a manufactured home on some acreage outside of town. In fact it is the house my husband grew up in; we purchased if from my in-laws when they moved to the Seattle area. Even though it wasn’t the first home we’d purchased, it was the first time we attempted to obtain a traditional mortgage on and let me tell you, I had no idea what I was getting in to. There are so many things I wish I had known before beginning the process that would have made things a little easier and less confusing.
Tips for First-Time Homebuyers
- One of the first steps is figuring out how much home you can afford. I knew what I could afford to pay in a monthly payment, but I didn’t know what that converted to as far as the purchase price of the house. A rule of thumb is to look at houses that are 2.5 times your annual salary. Ideally, your monthly housing payment shouldn’t be more than 28 percent of your gross household monthly income and don’t forget to consider property tax and homeowners insurance costs. That can add a couple hundred dollars to your monthly payment.
- Your financial history is important too. As I mentioned we had a bankruptcy in our past and since it was still showing on our credit report we actually had to provide a letter explaining the reasons for the bankruptcy and how we intented to avoid that situation in the future. Just becuase you have blemishes on your credit doesn’t mean you’re out of the running, but be ready to explain to the lender why it happened and why it won’t happen again. Lenders also look at income, other assets, job history, credit score, total debt and how much you’re willing to put down as a down payment.
- The traditional estimate for a down payment is 20 percent of the purchase price of the house, which can lower your monthly payments and avoid mortgage insurance better than a lower down payment. Being able to avoid mortgage insurance also helps keep your payments lower since that premium isn’t factored into them. We had a VA Guarantee since my husband was in the Army so those things are also considered.
- Remember that closing costs can add to the amount you need to close your loan and take possession of your new home. Look them over carefully, because they can vary from one lender to another. Also, you can ask if they can be included in your loan becuase sometimes they can depending on the type of loan you get. It may increase your monthly payment slightly or increase your interest rate slightly so make sure you weigh the cost vs. benefit of doing so, but it can be done.
- There are many different types of mortgages out there and which one you choose depends on a lot of variables, including your budget, the amount you can afford to put down, the interest you’ll pay and the term length. All mortgages have pros and cons, but starting with at least a basic understanding of what’s available is important so you can determine how much you need to save.
There are tons of resources out there both on and offline for homebuyers. So many that it can be difficult to know which ones are credible and which are not. A great place to look for information that you can trust is Capital One. Capital One’s goal is to help first-time homebuyers understand how the home loan process works. They have even launched a new online learning center that features the know-how that you’ll need to become the savviest homeowners on the block.
The Capital One Home Loans Online Neighborhood is a free online resource where you can learn all about home buying. There are easy-to-understand articles and helpful videos, as well as information about Capital One’s Home Loans offerings. The friendly online neighborhood covers all stages of the home buying process – from deciding whether now is even the right time to buy and how much home you can afford, to the documents you need to apply for a mortgage.
If you’re interested in learning more about Capital One Home Loans and how they can help you get home, visit https://www.capitalone.com/home-loans/direct/learning-center or give them a call at 855-900-8886.
What questions do you have about home ownership? What do you wish you had known when purchasing your first home? Let me know in the comments below and thanks for reading!
I was selected for this opportunity as a member of Clever Girls and the content and opinions expressed here are all my own.