As you sit down to create your first ever house hold budget I hope that you’re ready for the first house related expenses that you’ll now be hit with. As we all know by now, buying a house is not a cheap option. If you’re switching from renting to owning, or going from living with your parents to owning, you’ll be in for a nice surprise. I’m not here to scare you at all. I just want all of you to be well prepared financially in advance so that you don’t go into credit card debt.

Let’s take a look at first house related expenses that you will have to deal with:

Direct first house related expenses.

Closing costs/lawyer.

As you save up for your first ever house hold budget you must understand that you’ll be hit with closing costs. These are the costs that you pay when you purchase a property and they vary depending on the location. I mentioned the lawyer in this section because you usually end up paying both at the same time. Make sure that you at least have over a thousand dollars saved for this.

Home inspection.

Often times you might need a thorough home inspection done on the property. This is essentially done so that you can protect yourself and be well aware of what you’re getting yourself into with your first home purchase. You don’t want to find out that your new home needs extensive repairs once you’ve already moved in.

Mortgage payments.

This is an obvious first house related expense. Along with a new home come mortgage payments. These will eat up a significant portion of your income and I hope that you’re ready to deal with this.

Property taxes.

You pay property taxes which are based on the value of your home. Simply put, the more expensive your home is, the more you’ll pay for property taxes. You can’t get away from this expense either.

Insurance.

Usually when you apply for a mortgage you’ll be required to show proof of homeowners insurance. The price here will once again vary depending on the value of your property and the area that you live in.

Utilities.

When you rent a one-bedroom apartment the heating bill and utilities won’t be too much. As you move into your first home and work on your first house hold budget you realize that utilities can get pretty expensive.

Now we can get a bit creative and take a look at the first home related expenses that are not so well known…

Indirect first house related expenses.

Repair and maintenance work.

No matter how great your first home is, there will be the temptation to do some repairs and basic maintenance work. From creating a bar area in your basement to setting up your own home office, you’re likely to spend lots of money on maintenance work on your new home.

Increased consumption.

The odds are strong that you’ll generally spend more money when you purchase a home. With your new found space you’re going to want to spend money on things you never imagined.

Furniture.

We all know that every new home needs new furniture. You’re not going to want to put old furniture in your new home. The cost of furniture will vary depending on how many rooms in your new home you want to decorate and what kind of quality you’re looking for.

Yard work.

I’ve been living in a house for most of my life so I know how expensive yard work can be. Maintaining your yard will cost you a lot of money and time. Shoveling snow, cutting grass, watering plants, and planting a garden take plenty of time. These activities will also cost you a decent amount of money. A lawn mower is not cheap, nor is a snow blower. Be prepared for the amount of time and money that your new yard will require.

I hope that now you understand all of the first house related expenses that come along with your first time home purchase. We also looked at how-to get a mortgage in 3 easy steps, how-to pick the right home for a first time home buyer, and how you can buy a home in 5 easy steps.

Were any first house related expenses missed in this post?

(photo credit: by lorena)

We have come a long way with our discussion on buying a home. We recently looked at how-to get a mortgage in 3 easy steps and how-to pick the right home for a first time home buyer. Today we will look at the 5 steps to buy a house a first time home buyer:

Step 1: Save up your money as a first time home buyer.

You need to get your finances together before you can apply for any first time home buyer program. A part of this process will require to find out where your credit score stands. Your credit score is extremely important here because it basically dictates your level of credit worthiness. To put it bluntly: poor credit score means you pay more money on interest.

If your credit score is poor or you don’t have enough money saved up you might have to take a step back and fix these issues. You can start by working to pay off your debt, save more money, and start making all of your payments on time. You need to get your finances up to par before you can continue on and look to buy a home. This includes an increase in savings and with your credit score.

Step 2: Get pre-approved for a mortgage so you can buy a house.

As a first time home buyer you need to apply for a mortgage and get pre-approved for a certain amount. This process will allow you to determine exactly how much house you can afford. A few other reasons you should get pre-approved for a mortgage before you get into any first time home buyer programs include:

• Save time. You will save time because your real estate agent will only show you homes that you can afford. You want fantasize about homes that are simply out of your price range (no matter how fun this is).
• A faster closing period. Sine your mortgage loan application has been basically processed you can experience the luxury of a faster closing period as a first time home buyer.
• Gain confidence. You will start to see homes that you can afford. The process of buying your first home will become more exciting for you.

Once you are pre-approved for a mortgage you will see exactly how much you can afford for a home and you can move on to the next phase.

Step 3: Find a reputable real estate agent.

You need to find a real estate agent that you trust. This is where you need to reach out to your network. Your friends and family should be able to point out a real estate agent that they worked with. Don’t settle for the first one either. This person will play a major role in your first time home purchase.

You must understand that agents usually work on commission, not salary. They are not public servants. If they don’t close the home they don’t get paid. It’s really that simple. Keep this in mind as you agent recommends homes for you. You should also ensure that your expectations are known. You want an agent that works for you and not against you.

Step 4: Figure out your housing needs.

What do you want and what do you need as a first time home buyer? You need to separate your wants and needs. You may need to live close to a school for your kids. You will want a swimming pool in the backyard. Your wants and needs should be established right off the bat so that you don’t waste your time looking at homes that are not right for you.

Step 5: Plan for first time home buyer fees.

As you look to buy your first home you need to become aware of the fees that will be hitting you in the near future. This is a topic that will be covered in greater detail soon. For now we just want you to understand that you will be hit with a plethora of fees as a first time home buyer. The only suggestion here is that you don’t get carried away and buy a home that barely fits in your amount that the mortgage loam was pre-approved for.

There we go. A comprehensive piece for all of the first time home buyers out there looking for the steps to buy a house. Did we miss anything?

(photo credit: svadilfari)

Are you looking to apply for your first mortgage? Are you finally ready to purchase a home? The first time mortgage applicants have come to the right place. We had the obtaining a mortgage series here many months ago. Now were back with a comprehensive post on the topic.

Step 1: Make sure that you’re ready for that first time mortgage.

Work.

Those curious about a first time mortgage need to understand that you work will play a heavy role in where you decide to live. Your location of work will allow you to decide what part of town you live in depending on how close to work you want to be. In the city that I live in the hot properties are those close to the subway line because public transportation allows for cheap travel to and from work.

Savings.

How are your savings? Have you dealt with that credit card debt yet? Before you go in for the first time mortgage application you must be realistic with your savings and where you stand financially. Sometimes the best investment is the one you don’t make.

State of mind.

Are you single? Are you enjoying the bachelor life? Are you getting married any time soon? Your state of mind will play a major role in your first mortgage and how much money you end up borrowing.

Location.

You need to decide where you want to live and what area you can afford a property in. You may choose to buy a condo downtown because you want to be close to the centre of town. You could also decide to purchase a bigger property out of town and drive in to work.

Step 2: Get all of your mortgage documents together.

This is the critical stage for those searching for how to get a mortgage. The first time mortgage application process can seem very daunting at first. It doesn’t have to be like this though. If you’re organize and have your stuff together then this process can be dealt with fairly easily.

Your documents for your income.

The mortgage loans/banking industry has really tightened up since the economic crash in late 2008. A few years ago the rules weren’t too strict. These days you really have to go out of your way to prove your income. There are two types of situations:

1. Self-employed. My friend that works as a Mortgage Broker told me that the banks often hesitate on loaning huge sums of money to the various entrepreneurs that come in. As a self-employed individual you’re going to have to prove your income somehow.
2. Standard. If you have a traditional job then you’ll have to simply show your year end income forms (name varies depending on where you’re reading this, T4 in Canada).

The next set of documents will revolve around your current financial picture. The bank or company loaning you the money will want to know for sure that you’ll be able to make the mortgage payments. These individuals also understand that you could lose your job at any point in time.

Assets/Savings.

This is where the bank finds out exactly how much money you have. It doesn’t look good when you spend all of your money on the home purchase. The bank will want to know that you have some cash on reserve in case anything were to happen. When it comes to this section please make sure that you list all major assets (usually a car) and savings (investments, stocks, savings accounts) so that the bank sees your financial situation is strong.

Liabilities.

This is where your debt or the debt of your partner can really hurt you. The more money you currently owe the more the bank will think twice. They don’t want to loan money to someone that owes many creditors money already.

Step 3: Learn about the first time mortgage fees.

For the first time mortgage application the fees may be very surprising. A friend of mine purchased a property many years ago with only the thought of mortgage payments in mind. He totally forgot to consider the plethora of other fees that come with a new home.

The basic fees that you need to consider with your first mortgage include:

• Lawyer costs.
• Closing costs/taxes.
• Mortgage payments.
• Property taxes.
• Home insurance.
  

There you have it. A look at how you can obtain a mortgage in 3 easy steps. The steps will take a long period of time but you shouldn’t be shocked by anything after reading this post.

Check out the obtaining a mortgage series for more details:

Part 1: Are you ready to purchase a home?
Part 2: Get your documents together.
Part 3: Get ready for all of the fees.
Part 4: How-to not lose your pants on your first mortgage.

(photo credit: Paulswansen)

Are you thinking of buying a house some time in the future? While it can be a financial prudent decision for some people, it’s not something you should just jump into. Buying a house is probably going to be the most expensive purchase you’ll make in your life, so you want to make sure the numbers work for you.

Speaking of numbers, have you decided how much money you’re going to save for your new place? If not, no worries – I’ll share some sites and ideas for you to consider. Hopefully you’ll find something that works well for you.

What Kind of Place Do You Want to Buy?

If you’re pretty certain about the area you want to purchase a home in, I would recommend sites like Zillow and Trulia where you can get a fairly good estimate of how much money you’d need. You may be surprised at how low or high the prices is currently. You should also check to see if there are any home association fees with the property. That can be a great deal or a nightmare as each one is different. Either way, it’s something that you should factor in with your finances.

How Much Down on the House?

The old standard for buying a house meant putting 20% down. With the housing bubble, some lenders were selling homes for 0% down.  One consequence of that was borrowers have a higher mortgage than what their finances could handle.

Even though there are some lenders that will allow buyers to put a small amount down, it’s in your best interest in many cases to save up for a bigger down payment. If you’re paying less than 20% down, then you have an added financial burden of private mortgage insurance.

Some try to get around that by getting a piggy back loan, where their mortgage is for 80% and the rest is covered under a separate loan. The second loan usually has a higher interest rate so that could be a big strain on your finances.

Another benefit of putting down a bigger down payment is how it can help you get a better (aka lower) interest rate on your home mortgage. That can save you quite a bit of money.

Thoughts on Buying on a House

I know some readers are already on the hunt for their house; I’d love to get your thoughts on the process. What kind of a house are you buying? How much do you want to put down for it? How are you saving up for it?

We are back again with the obtaining a mortgage series! Hopefully by now most of you guys have a better understanding of your financial situation and your chances of getting approved for your first mortgage. If you are pretty confident that your mortgage application will get approved, then congrats! Today I wanted to look at how-to not lose your pants with your first mortgage:

Don’t treat it as your best investment.

Sure home prices can appreciate, but do they always? A home can be a solid investment, but is it always a great investment? These are thoughts that you need to seriously consider as you plan on getting together a down-payment for your first home purchase. In the long run, you have the potential to sell your home at profit. However, you need to factor in inflation rates, real estate fees, property taxes, and the general maintenance on your home while you live in it. Long story short– you shouldn’t expect to make a killing from your primary residence.

On that note, by not treating your primary residence as a major investment you can prevent some poor short-sighted decisions from happening. You don’t want to make any snap decisions when you find out the value of your home has decreased. This could very well happen at one point in your life. Real estate prices always fluctuate. The worst thing that you could do at this point is to panic and try to sell your property. This is a short sighted solution and it’s a guaranteed way to lose money. You’re smart enough to research this topic so don’t make any rookie mistakes.

Stop listening to supposed experts.

Just because a real estate “expert” says that now is the ideal time to purchase a home due to low interest rates or low housing prices, it doesn’t mean that it’s the best time for you. As you read through this series and consult a real estate agent/mortgage broker, you should NOT let anyone else be the main judge of your decision. This is the biggest decision of your life. More importantly, it’s YOUR decision. An expert might think that a certain decision is the best one, but don’t let them decide everything for you.

Don’t rush to buy your first home.

Just because you’ve been approved for a mortgage it doesn’t mean that you have to purchase a home immediately. We all tend to rush with our purchases. I personally feel that I rushed my first home purchase. I felt that I had a great deal and that I had to make a quick decision at the time. Not sure why I felt this way. I don’t regret the condo purchase because I don’t believe in living life with regrets. However, I do wish that I didn’t rush.

Rushing to purchase your first home could cause many financial and mental problems. You could lose money by paying too much for a property or by over-bidding. You can create mental problems by realizing that you don’t like the property as much as you thought you did. It’s really easy to fall in love with a property. It’s even easier to buy a home that you feel attached to. It’s not so easy to sell a home, buy a new one that you end up loving more, and to have to move all over again. This is why it’s important to check out as many homes in a few different areas before you make a final decision.

Don’t use the full limit just because.

When you get approved for a mortgage of X amount it doesn’t mean that you have to buy a property that will use this full limit. Being approved for a mortgage of up to $200,000 doesn’t mean that you need to find a home right at this price. It’s usually recommended to go a little lower so that you have some breathing space. You want to have some money set for the other expenses that will come along with your home.

Spending all of your money on the home.

When buying your first home it’s common to spend all of your money on it. This can cause many problems because this means that you either don’t have an emergency fund or any buffer in case you need money down the line. You never want to leave yourself compeltely vulnerable like this. Putting every single penny towards your mortgage is a guaranteed way to lose your pants down the road in the future.

Congrats on making it this far! You’re now ready to get your first mortgage for your first home purchase without losing your pants.

The rest of the obtaining a mortgage series:

Part 1: Are you ready to purchase a home?
Part 2: Get your documents together.
Part 3: Get ready for all of the fees.

(photo credit: piscesblue81)

We took a little break from the Mortgage Series last week. However, do not fear because were are back again with another edition! I already asked you guys if you were ready to purchase a home and we talked about getting our documents together. What’s next? Paying for the mortgage and all of the fees involed with a mortgage.

Since we brought up certain fees that will come along with a mortgage already, it’s time that we went into a little detail on the important areas. I wanted to address the three main direct and indirect fees that come along with a mortgage:

Direct fees with a mortgage.

There are fees directly tied into obtaining a mortgage and making your first home purchase. If you don’t account for these expenses then your first home purchase could end up a disaster. If you do calculate these fees then you’ll have a better understanding as to if right now is the ideal time for that home purchase.

Mortgage payments.

This includes mortgage payments plus interest. If you don’t compare your salary to your other expenses along with your mortgage, your home purchase could be a financial mess. I personally opted to make bi-weekly payments on my mortgage. I also get paid bi-weekly at my current job. This means that I need to consider my mortgage payment before I decide to make any other purchases (like a Spring Break trip next year).

Property fees.

This ranges from property taxes to maintenance fees. I was watching a real estate show on the HGTV channel in Canada a few months ago. The couple was looking to purchase a town home. At the end of the episode they finally found a town home that met their needs. The location was perfect and the couple fell in love with the actual property. There was just one issue. This property came with maitnenance fees. The maintenance fees were a crippling $400 a month. Yes, an extra 400 hundred bucks on top of your mortgage. Heaven forbid you plan on eating or going out at all. Please consider all property fees when planning to apply for a mortgage. Maintenance fees in most condos can be very expensive and crippling.

Lawyer costs.

Lawyers don’t work for free. When you first apply for a mortgage you’ll find that the lawyer working with you is extremely helpful. This is because they plan on charging you for everything. I remember being billed for every phone call/fax. You should at least save $1,000 for a lawyer when working on closing a mortgage.

These are the three main direct fees that come along with a mortgage that I wanted to address today. Of course you’ll also need to consider the involvement of a real estate agent in this mix.

Indirect mortgage-related fees.

Now that we looked over the direct mortgage fees, how about those indirect fees that I mentioned? The next issue that you’re going to have to cover is figuring out if you can pay the indirect fees that will come your way now. The three most common indirect fees here are:

Increased consumption.

Now that you have your own place you’re going to want to spend some money on the items in your property. You’re going to want a new flat screen tv. You’ll be tempted to design every room in the place to look the way that you want it to. Simply put, your consumption will increase. You’ll be spending more money than when you were renting.

Repair related work.

Even when you purchase a brand new piece of property from the developer, you’re still going to have to do some construction related work. From changing up the look of the backyard to setting up a bar in the basement. Every home owner feels motivated to perform some sort of repair work around their new property. These are all additional fees that will come along with holding a mortgage.

Maintenance.

You’re going to have to take care of your new property, especially if you want it to increase in value for a future sale. Then there’s maintenance like shoveling the snow or cutting the grass. This won’t directly cost you too much money, but it will certainly eat up a lot of your time. Do you have the time to spend? Will you outsource these activities?

Rarely do potential home owners look over all of the fees that go along with acquiring a new mortgage. Are you ready to cover the many fees that go along with a mortgage? Where do you stand right now?

Check out the rest of the Obtaining a Mortgage Series:

Part 1: Are you ready to purchase a home?
Part 2: Get your documents together.

(photo credit: dyntr)