Buying a first home is an incredibly exciting experience. But as unexpected expenses crop up, from closing costs to taxes and maintenance, suddenly being a new homebuyer feels like being an ATM. The good news is, the home buying process doesn't need to be surprising. Here are three ways first-time homebuyers can prepare to expect the unexpected.
Know the Costs of Buying a Home
The big focus for many first-time homebuyers is coming up with enough money for a down payment. And while the down payment may certainly be the largest lump sum payment someone will make, there are plenty of other expenses that go along with it. But keep in mind that some of these costs can be rolled directly into a mortgage, so new homebuyers may not necessarily need to have cash on hand to cover all of them.
Unexpected costs of buying a home may include:
- Closing costs, which can include appraisal fees, title insurance, loan origination fees, and more
- Property taxes
- Homeowner's insurance
- Homeowner's Association (HOA) fees
- Utility bills
- Appliances and furniture
- Maintenance, including painting or minor renovations before move-in
Get Pre-qualified or Pre-approved for a Mortgage
Pre-qualification for a mortgage gives borrowers an idea of how much they may receive based on their finances and credit. Pre-approval takes it one step further to almost complete the underwriting process and provide a homebuyer with a specific loan amount that's good for 90 days. These options can help buyers better understand how much loan they can expect to receive.
Once a buyer determines the loan amount they may receive, it's smart to understand how they'll cover the cost of that loan if something unexpected happens. That means a homebuyer will assess their monthly cash flow to confirm they can cover the loan cost and may want to consider taking out a term life insurance policy to cover the mortgage if he or she was to die unexpectedly.
This can be an especially good idea for couples. The right term life insurance policy can provide financial security so the surviving spouse can pay off the mortgage without worrying about the significant debt burden a mortgage can carry.
Decide on Contingencies
A contingency is part of a real estate contract that protects first-time homebuyers by giving them an out in certain circumstances. Common contingencies are home inspections, appraisals, and mortgage approvals. It works like this. In a situation where a buyer has a contingency for a home inspection, the buyer can choose to walk away with their cash in hand if the home inspection comes back with more issues than they're comfortable accepting.
First-time homebuyers need to know what contingencies they feel must be included and those they are comfortable waiving. Sometimes, waiving a contingency can make a buyer more attractive to a seller who wants to move a property quickly. But the risk is that waiving a contingency like a home inspection could land the buyer in a money pit of problems.
The Bottom Line
First-time homebuyers can find their heads spinning with the various aspects of the real estate process. And that's where finding a great real estate agent comes in handy. The right real estate agent can help any first-time homebuyer better understand the costs of buying a home, how to financially prepare, and what contingencies to stand firm on. That way, the buyer lands the house of their dreams with no unexpected surprises.
Contact: carolina.darbellesv@iquanti.com
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Original Source: Northwestern Mutual: How First-Time Homebuyers Can Expect the Unexpected
