Congratulations! You are about to embark on one of the defining events in your life, buying your first home. The joys, comforts and potential financial rewards of home ownership are about as American as apple pie.
But since it's often the single largest purchase most of us will make, the process of buying your first home can be quite involved and lined with milestones. To look more closely at the initial steps in this process, let's assume you've done your research and planning and have decided you're ready for the investment of time and money that a house requires. What now?
Here's a quick list of ideas for first-time homebuyers that will not only help you get started navigating the path to home ownership but can help you save money, too.
How Much House Can I Afford?
Some people will tell you the general rule is that you can afford a house that costs up to two and one half times your annual gross income before taxes are deducted. However, this general rule fails to take into account monthly debt load. There are a number of Regions mortgage calculators that will help you determine how much you can borrow and if you should pay points to lower the rate. As a general rule, monthly housing costs (including mortgage payments, property taxes, insurance and fees) should total no more than 28 percent of your monthly gross income.
Getting credit pre-approval by a Regions or other qualified mortgage loan originator gives you more flexibility when searching for a home. It's easy to do the calculations yourself with any of the Regions online calculators, but a mortgage loan originator can best give you specific details about the types of mortgage loans that will meet your needs.
The Cost of Buying a Home: Down Payment and Closing Costs
The amount of home you can afford to purchase is directly affected by the amount you have available for a down payment amount and the closing costs you must pay. The down payment is a percentage of the home's value, and the type of mortgage you choose determines the down payment you will need at closing. The minimum amount can range from 3 - 20 percent. Usually closing costs are a percentage of the loan amount and typically run between three and six percent of the mortgage amount.
Credit Report Review
A review of your credit report before you apply for a mortgage allows you time to remedy any incorrect information included on your file. This is important since your credit report will affect the mortgage rate a lending institution will offer you. If your credit is in poor standing, you may wish to improve your credit report before applying for a mortgage so that you save money in the long run.
Obviously, there are more details to buying a first home, from neighborhood considerations and choosing an agent to negotiating your offer and the home inspection process. For more tips and help, see Regions mortgage calculators such as "How much will my mortgage payments be?" or "Which is better: a 15 or 30-year loan term?" For a concise summary of the mortgage process, see Regions Buying a Home.
- Save Time - Be more productive by making lists and using technology to your advantage. Have an iPhone or iPad? Then use iCal or Reminders for to-do lists, alerts and more for better productivity. Have an Android device? Use the Android Market for more productivity apps.
- Save Money - Pack your lunch. If buying lunch at work costs $5, but making lunch at home costs only $2.50, then in a year, you fund a $500 emergency fund and still have $100 left over.
- Save for the Future - Pay yourself first. Sounds obvious, but if you are waiting to save until you see how much money you have left over from your paycheck, you are waiting too long. Think of your monthly savings ($100 each paycheck, $200 or whatever you can afford) as a bill that is due. Pay it — put it in savings — accordingly.
- Save Time - During the holidays, shop online early to save time. Plan meals ahead of time. Cut back on your social commitments. Prepare and freeze desserts or snacks you can reheat quickly for surprise guests.
- Save Money - Don't place lamps or TV sets near your air-conditioning thermostat. The thermostat senses heat from these appliances, which can cause the air conditioner to run longer than necessary. See more tips and ideas at energy.gov.
- Save for the Future - Give yourself a gift: instead of purchasing expensive gifts during the holidays or for birthdays, consider saving for the future by contributing to your retirement fund or your children's college fund.
This information is general in nature, is provided for educational purposes only, and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. Regions neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.