Owning a home is an exciting prospect, but it can also put a strain on one’s finances (and nerves). Here are some basic tips that will help a first-time buyer navigate the unfamiliar waters, avoiding some pitfalls along the way.
1. Deposit.
Start with the tried-and-true financial standard of home buying: put at least 20 percent down. There are some lenders who require less (or nothing), but with 20 to 30 percent down, in the event that home prices drop, you will have less of a chance of owing more than your home is worth. Also, the amount that you put down is an initial savings that would reduce the interest burden on your mortgage.
2. Do the sums.
Consider getting a fixed-rate home loan, keeping the biggest part of your monthly housing bill more stable. And determine how much your monthly loan repayments and housing-related expenses, such as regular upkeep and insurance, will cost. Look to spend about 30 to 40 percent of your pre-tax income on such expenses – a reasonably conservative figure.
3. Forecast.
Another tip is to map out large home-related expenses you may incur in the future. This covers the cost of renovations and regular upkeep, including repairs needed as a result of the weather, including heavy rains and flooding
4. Aim high.
Also, aim to buy your dream house, condo or townhouse, if you can afford it. If not, opt for an inexpensive “starter” home. Don’t settle for something in-between, as your housing costs will be high, and you don’t get what you want. If you purchase an entry-level home, you can save money on monthly loan repayments and other housing costs. After a few years, you’ll find yourself in a better position to buy what you actually want, or to upgrade your current space.
5. Consider future eventualities.
Look at the broad picture and draw important lessons from the sub-prime mortgage crisis in the United States, which was caused by escalating loan defaults and foreclosures. Many home buyers did not consider the future risk of their cash flow or income, and expected the value of their homes to rise. Coupled with easy mortgages and low interest rates in the first few years, buyers later found themselves in deep financial troubles.
