Finances > Loans & Interest > Help Buying a New House – 10 Tips for First Time Home Owners

Help Buying a New House – 10 Tips for First Time Home Owners

If you’re buying a new house or condo, these ten tips for first time homebuyers are a must-read! They’ll help you figure out mortgage rates, interest payments, credit scores, financial budgets, and insurance costs…

Before the tips, a quip:

“One only needs two tools in life,” said G.M. Weilacher. “WD-40 to make things go, and duct tape to make them stop.”

If you’re buying your first home, make sure you have WD-40 and duct tape! And, friends and family who are handy around the house are handy to have, too.  For more info on buying a new house or condo, read Nolo’s Essential Guide to Buying Your First Home.

And, here are ten tips for first time homebuyers from Ethan Ewing, president of…

Help Buying a New House – 10 Tips for First Time Home Owners

1. Apply for a mortgage loan when home prices are low. Home prices dropped at a record annual pace of 18.7 percent last March. If you’re a first time homebuyer, you can find real bargains. For extra help, read 7 Tips to Make Buying a House Easier.

2. Buy a new house when interest rates are good. While interest rates have risen from their historic lows earlier this year, they’re still are appealingly low. In June, rates hovered around 5.25 percent for a 30-year fixed-rate mortgage. Remember – buying a home is one type of good debt.

3. Remember that tax credits help. First time homebuyers can get money back from tax credits implemented as part of last year’s American Recovery and Reinvestment Act. An $8,000 credit is available to first-time buyers (a category that includes people who have not owned a home for several years) for homes purchased before Dec. 1, 2009. Legislators are considering increasing the credit to $15,000 and expanding it to include other home buyers.

4. Check your credit scores. While houses are widely available, financing is only for those with good credit. Credit scores range from 300 to 850, with the median U.S. credit score about 725. A score below 660 usually results in a higher interest rate or denial of credit. Check your credit score before making home-buying decisions. If your credit score is poor, wait a few months and work to rebuild your credit score by paying every bill on time, paying down as much debt as possible and disputing any erroneous information on the report.

5. Make sure you have enough saved up. Whether or not you’re a first time homebuyer, a down payment is essential today! Ideally, put down 20 percent of the purchase price. If not, talk to a mortgage lender about options. And, learn how to save your money!

6. Don’t stretch your financial budget too far. Standard guidelines call for keeping housing expenses below 35 percent of total income. “Breathing room” in your budget will help secure a home even if something unplanned does occur. If you are uncertain, wait to buy.

Have you learned how to attract wealth into your life? Read Money and the Law of Attraction – 4 Ways to Attract Wealth.

7. Understand private mortgage insurance. Mortgages with less than 20 percent equity (which means a 20 percent down payment for those purchasing a home) require private mortgage insurance in case the owner defaults on the loan. When the home owner pays a conventional mortgage down to 80 percent or less of the home’s value, the home owner can request the lender to cancel the private mortgage insurance and then be able to stop paying the additional amount. Meanwhile, private mortgage insurance is tax-deductible, at least through 2010.

8. Know the real costs of being a first time homebuyer. The principle and interest on a mortgage payment are only the beginning of home-related costs. Escrow payments – the funds withdrawn to cover home insurance and taxes – and private mortgage insurance can add a few hundred dollars per month (or more) to a mortgage payment. In addition, first time home owners (all home owners, actually) must pay for repairs and maintenance, of course. A general rule of thumb is to budget 1 percent of the home’s purchase price per year for upkeep.

9. Avoid prepayment penalty on your mortgage. If the mortgage has a prepayment penalty, borrowers face hefty charges if they pay it off early. This provision also can be triggered by refinancing down the road, so if you’re a first time home buyer – be forewarned! Review the Truth in Lending disclosures that your loan officer sends you prior to signing your loan.

10. First time home owners: “Buyer beware!” Some of the lowest prices on homes today are “fixer-uppers” or homes sold “as is” because of foreclosure. Invest in a home inspection (typically costing under $400) before agreeing to purchase any home. An inspection informs buyers of any faults in the home, and helps determine the approximate cost to remedy those problems.

If you haven’t found a realtor yet, read How to Find the Right Real Estate Agent to Help You House Hunt.

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12 thoughts on “Help Buying a New House – 10 Tips for First Time Home Owners”

  1. Laurie Pawlik-Kienlen

    Thanks for your comments, Bruce! Every little bit helps, when you’re buying a new house. My best tip for first time homebuyers is to be prepared to spend a lot of money on your house. We bought our house a year ago, and are just now spending thousands of dollars on new windows. Our first expense, which is pretty good. But it’ll be expensive.

  2. Great information but better plan how to save on your house payments now you own it like by making bi weekly payments and gaining two or three payments a year You can save over a hundred grand over twenty years. Also learn to change your amortisation evry few years. so you only pay tax on what you owe not on what you used to owe. Taxes kill.

  3. Laurie Pawlik-Kienlen

    How exciting — you’ve bought your first home! You and your fiance will be able to afford the mortgage payments; you know that because of all the research you did before you bought your house. You did due diligence and didn’t make a rash decision. That’s the first step to paying off your mortgage.

    Now, as Rick said, enjoy your new home…even if you have to fix things here and there, enjoy the fact that it’s YOURS. :-)

    .-= Laurie Pawlik-Kienlen´s last blog post …How to be Lucky – 10 Ways to Get Luckier in Life and Love =-.

  4. That’s great Bryan, congratulations. I certainly don’t know the market conditions where you are but in some areas the prices have pulled back and with interest rates at rock bottom I am sure you have made a sound decision. I personally think it is good to stretch when buying a house if you are able to manage your money well. Stay focused on paying down your principal and enjoy the pride of ownership.

  5. Okay, I’m back with news to report. My fiance and I have purchased our first home. The house ended up being 3.2 times our annual salaries. However, the montly mortgage, PMI, homeowner’s insurance and taxes are 32% of our monthly gross income. We ended up at the high end of our range which I can see happening often.

    Thanks again!