THE BIGGEST HURDLE TO OVERCOME AS A FIRST-TIME PROPERTY BUYER

Life is already hard enough on first-time home buyers who aren’t aware of just how expensive and complex the real estate market can be. Because of how strong the market is currently, combined with rising rent and housing rates, it’s hard for someone to step out of leasing property into actually owning it.

One of the first steps in getting ready for buying your first home is making sure your finances are in check. You need to be aware of key information in regards to your credit, debts, income and any assets you own.

Your best bet is getting a pre-approval. This means asking a lender to make sure your
credit score is good enough to purchase property, you have enough money to reasonably buy property, the money you have coming in is enough to reasonably keep your debts under control, and also that you have enough financial character to be approved for big purchases.

So what’s the most important part of this formula? Overall, it’s making sure you have the right amount of cash. Cash is king; make sure you are more than covered to purchase the property you really want.

Potential Situations

You’re put in a sticky situation as a first-time buyer because the amount of programs to help you with your purchase is drastically diminishing as time goes on. This makes even placing a down payment on a property a pain unless you have the backing of a local program, not one specifically for first-time buyers.

You truth really is you don’t HAVE to have all $500,000 immediately to buy the home you want, but it’s a good idea to have at least a sizable chunk of it AND know you have the income flow to cover your purchase. This doesn’t include closing costs. If you purchase a house with 5% closing costs, that’s $25,000 in extra expenses you can’t wait on paying.

Go back to that $500,000 house example. Even if you’re not looking for something so ritzy, just roll with it. In this case, you’ll need at least 3.5% of that cash ($17,500) to put in for your down payment, then the $25,000. Add these two together and that’s $42,500 you need in your bank account to pay for your new home.

Some closing cost percentages aren’t so high; truthfully 5% is on the high side. Let’s say that the closing cost rate is 2.5%. This means you’ll need $17,500 for your down payment and still $12,500 for your closing costs, giving you a grand total of $30,000.

Your Solutions

Let’s say you don’t have that $30,000 or $42,500 for your dream home. You still have options. You can get the rest of the money from gift (as long as it’s documented as such), retirement funds like IRAs or your 401k, selling your life insurance for the cash value, even switching to a higher paying job. You’re also walking into a housing market that IS loosening the reins on mortgage requirements. If you can afford mortgage payments, it’s likely you can afford the house you want.

Overall, keep track of your finances and start keeping a closer eye on your money. If you want to overcome housing market hurdles, keep your closing cost and down payment percentages in mind and keep your finances at the front of your mind.


Written by Jason Gordon
Credit: Redtaxhomes4sale