Financial Tips for Buying Your First Home

5.27.2015



so we're still on the hunt, in case you were looking for an update on the home search front.  and touring homes is still totally exhausting for me, but fun for john.  you would think it would be the other way around.  you know what is fun for me though?  the finances part.  john's all fish out of water over things like budgets and loans, but i totally love it.  house hunting is about gut feelings and patience (not my strong suit).  but loans and budgets?  those are cold, hard numbers.  i can do facts and figures.  and i weirdly love budgeting, i look forward to the 1st of the month so i can do it all over again.

it's hard to get a handle on every little aspect of the finances involved in owning a home, especially when you're a first-time homebuyer like john and i are.  i thought i could get an estimate based on what i pay in rent, but it's so much more than that.  there's maintenance costs, property taxes, insurance - no landlord comes in to save the day when the furnace stops working in january in chicago.

so how do you budget for it?  experience.  i know, i know.  not fun.  but every home is unique and you can get a great idea of what budget categories to include by using some budgeting software or app, but you won't know the exact number to put into those categories until you're in the thick of it.

but you can budget for getting the new house in the first place, and it's not as complicated as you'd think.  once you have a good financial plan for the purchase of the house, you won't be so strapped once you move in that you can't afford the heating bill.  you just have to have your ducks in a row financially:



(1) first figure out how much home you can afford and search for homes only in your price range.  the general rule of thumb is to look at houses that are 2.5 times your annual salary.  you don't want your monthly payment to be more than 28% of your gross monthly income.  the average in america is 31% and that includes utilities.  i think the one really helpful thing john and i are doing in this area is that we're getting a mortgage based only off of his salary.  (even though my job is more stable.)  so it's less than what we'd get if we combined our finances and credit scores, but if we did combine we'd have a high mortgage and more house than we need for 2 people.  plus this way, we won't get stuck in a situation where we're really in trouble and tapping into savings if something happens to one of us.

(2) know your financial history.  the mortgage lender is going to look at not only your income and job history, but also your credit score, all debt you have, any assets in your name, and how much you can put down for a down payment.  so if you're looking at houses 2.5 times your salary, but you also have .5 times your salary in debt, this will bring your loan offer down considerably.

(3) aim for a 20% down payment.  this will lower the monthly payments and you won't have to pay the personal mortgage insurance that's assessed to people who only put down, say, 5%.  there are some financial incentives offered to first time buyers, but 20% down will always give you a great start and safety net.

(4) don't forget closing costs.  they vary between lenders and between attorneys.  this can total thousands of dollars, to be paid on the spot, so don't underestimate it come closing day. 

(5) be prepared for all the options coming your way - there are so many different mortgage types.

still confused by #5?  or any of the steps?  you're not alone.  the only reason i understand real estate closings is because i work in a law firm that handles them.  and i still have more to learn.  so if you still need help, work with a mortgage lender you trust and try Capital One.  they launched a new online learning center for first time homebuyers.  the Capital One Home Loans Online Neighborhood is a free online resource where you can learn all about home buying through articles and videos, including deciding how much home you can afford and listing the documents you need to apply for a mortgage.  it's one of the most helpful resources i've come across in planning to buy a house.  i've made my way through the entire site, watching all the videos and reading everything.  so i highly recommend you check it out.

it seems like a lot of information at first, and a lot of numbers to figure out.  but to me, it's far easier than actually finding the house!  so if you need tips on house hunting, i'm not your girl.  and if you’re interested in learning more about Capital One Home Loans, visit https://www.capitalone.com/home-loans/direct/learning-center or call at 855-900-8886.


and then buy the house and decorate it with all things blackhawks.  happy house hunting!

I was selected for this opportunity as a member of Clever Girls and the content and opinions expressed here are all my own.

18 comments:

  1. I've been trying to get my realtor husband to write a first time home buyers post for an eternity. My plan is to force him to do it while we're on vacation. Should be fun for him. LOLOL

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  2. Great advice! We were in such a hurry to buy a home and missed out on some important advice. I love our home but we're paying PMI and we bought a house in a flood zone. (It won't flood- the problems with the nearby creek were fixed years and years ago, but since FEMA has it in a flood zone we have flood ins.)

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  3. excellent tips, so many just jump in and then get overwhelmed.

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  4. haha! I'm sure he would just love to give up some vacation time for that ;) Really though, he should. MFD has much knowledge. I wish he was here to help us!

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  5. We're really taking our time and considering options, and even I feel overwhelmed. I can see how easy it would be to get in a sticky financial situation quite quickly!

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  6. My parents house is the same, it's finally fixed now but we had flooding issues when I was a kid. The city fixed it but it's still considered flood zone, which many people don't realize affects your home insurance! There's so many little details you forget to think about.
    We're trying to really take our time and feel it out. We don't have to be in a house by any certain time, so hopefully we'll make the right choice. It's hard though!

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  7. Buying a home is hard, but so exciting and rewarding! excellent tips :)

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  8. I picked one that was 25 thousand less than what I was approved for, because I didn't want all of my money going to the house. I still kinda wish I had gotten the one that was 30 thousand less than I was approved for, but it sold too quick. I really wanted that pool :(

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  9. All really good points! Closing costs (buying or selling) will always get you! It's really easy to forget about those.

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  10. The husband and I bought our home based on only his salary before we were married and we paid $17K less than what our accepted offer was. But that was in 2010, when they were still offering that $8k tax credit for new homeowners.

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  11. you need at least 20% to even buy a house where i am. it used to be minimum 5% but then people kept on defaulting on their mortgages and then the banks finally had it and said fuck that shit, give me 20% or no house.

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  12. These are some really great tips. It sounds like you and John are balancing each other out in this process. I'll be returning to this post in a few years when it's my turn to buy a house. :)

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  13. such a helpful post - even though we already own a house (and because my husband was in the military we don't need 20% down) these are things i wish i knew and will keep in mind for the next house. especially closing costs.. they were a surprise, lol.

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  14. These are great tips indeed! I've been working on #2 and clearing my debt.. A nice work in progress. Good luck with the home search and hope you guys find something soon!! Have a great weekend Stephanie! -Iva

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  15. Wonderful post and very useful tips/info! We definitely jumped right into the home-buying process and didn't know what we were doing... we only put down around 5% which I regret, but at least we're working hard at paying down the mortgage now and getting rid of the PMI asap! We have learned a lot though and feel SO much more prepared to move to a new house hopefully within a couple of years!

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  16. This is seriously SUCH great information! Thanks so much for laying it all out in a such an easy-to-understand way. I would love to purchase a home in the next year or two and always worry about coming in under the 20% and don't want to pay off PMI rate.


    So much to think about, but I am really tired of pissing my money away on rent. Thanks again for this and hope you had a great weekend :)

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  17. Caitlin @ Candyfloss & PersieJune 2, 2015 at 10:24 AM

    Great information! We are not buying home yet but I can't read enough of this stuff. Good for planning! (and cute house)

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  18. Thanks so much for this! Very helpful! Congrats on the house! Looks awesome!

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