A home is one of the biggest purchases you will ever make, and the process is daunting. From finding a realtor to picking the right neighborhood for your family, there are a lot of decisions to make! Here are a few first time homebuyer tips to help you get started.
First Time Homebuyer Tip One: Double down on your savings
Did you know that 55% of Americans don’t have a budget? (The Penny Hoarder) Lacking financial awareness makes it increasingly difficult to make large purchases like your new home, so here are some tips on saving for your own cozy living space.
Your down payment is your first “savings goal.” (write this one down)
Numbers can be exhausting, so let’s keep it simple. The minimum downpayment on the most common type of loan (a conventional loan) is 3%. So, say you’re looking at a house that is $250,000 – your initial down payment to receive the loan would be $7,500. However, keep in mind if you can afford a higher downpayment, it can land you lower monthly payments in the future! A loan calculator is a great tool for estimating your specific down payment and monthly payments.
Next up: your closing cost. This typically costs 2-5% of your new home’s value and covers many different fees and additions of the homebuying process, from house inspections to title fees. The good news is, there are calculators for these too!
Using a calculator, you’ll find that if you were to pay that 3% minimum downpayment of $7,500 on your $250,000 home, you’re looking at an estimated closing cost of about $10,700. (4.4% of your home’s value).
Finally–move-in expenses. Some people might forget, but remember, you’ll probably need additional savings for minor renovations, additions, or furnishing for your new place!
Tip Two: Home Mortgaging Options
After you started saving, your next “home-work” assignment (see what I did there) is finding the right mortgage. A home mortgage helps you pay off your home over a set amount of time. The typical timelines are 15-year and 30-year mortgages.
A general rule is when you can pay more upfront, the cheaper your monthly payments will be, leading to an overall lower price for your home. Likewise, the shorter your loan period (say 15 years v. 30 years), the less interest you will accumulate.
There are four main categories:
- Conventional Loan- These loans are best for those with strong credit and can offer a downpayment as low as 3 percent; however, these are not insured by the government.
- FHA Loan- These loans can offer downpayments for as low as 3.5% and are backed by the Federal Housing Administration.
- USDA Loans- Guaranteed by the U.S. Department of Agriculture, these loans are meant for rural homebuyers and usually require no down payment.
- VA Loans- Backed by the Department of Veteran Affairs, current and former military members rate these loans. They also do not generally require a down payment.
For estimating mortgages, you can use, you guessed it… another calculator!
Tip Three: Homeowners Insurance (Our favorite!)
After a quick happy dance in your new living room, your next step is protecting your investment with home insurance, and this is where we LOVE to support first-time buyers.
Here are the basics:
Homeowners insurance covers your personal belongings, liability protection, additional living expenses, oh, and don’t forget–your home! It can even cover disconnected structures such as garages, sheds, and fences.
There are two important coverages every homeowner should be educated on.
Actual Cash Value Coverage- covers the cost to replace belongings or the house but takes into account the depreciation of those items over time.
Replacement Cost- covers the cost without considering depreciation, so you will receive enough money to buy these things brand new.
Need an example? Read more about them in our homeowner’s insurance blog.
When it comes to insurance, the details can get a tad overwhelming. If you are in the home buying process or simply want to learn more about insurance, our goal is to educate you on insurance processes so that you are prepared to make the best decisions possible for you and your family!
If you are a first time homebuyer and are searching for a different insurance experience, set a meeting with our excellent team of representatives here at Robbins Insurance Group so that we can help you find the best option.