It’s an exciting time in your life. You’re getting ready to buy your first home, and you’ve decided New Mexico is the perfect place to do it. Buying your first home is a life milestone, maybe the biggest one there is. It’s the essence of the American Dream. Nothing else says “I’ve made it,” like owning a piece of this great country.
But it’s a challenge too, with ups and downs, excitement and stress. If you spend time educating yourself on the process of buying your first home the experience will be all the more enjoyable and exciting for you. By following the advice here, you will get the perfect home, make a wise financial investment and be well on your way to a promising future. To make your first home purchase a pleasant experience it’s important you consider 5 things:
- Down payment and closing costs
- Credit history
- Lifestyle and location
In this post, I discuss each topic briefly so that you can be certain your first home buying experience is a good one.
One of the most common mistakes first time home buyers make is setting their budget according to what a mortgage lender determines they can afford. They end up spending the next 15 – 30 years struggling to make monthly mortgage payments, or worse, suffering a foreclosure.
A helpful guideline is to keep your mortgage at 25% of your monthly household income. This number may change depending on how much personal debt you are carrying. You’ve determined what a realistic monthly mortgage payment is but budgeting isn’t over yet. There are many new expenses that show up when you go from renting to owning a home. Homeowner expenses include:
- Homeowner’s insurance
- Home maintenance costs
- Utility costs
- Property taxes
And despite owning a new home you’re still going to want to eat, go on trips, and enjoy nights on the town.
Setting a budget is a crucial first step. It helps you avoid financial ruin, disappointment, and stress. Set a realistic budget and share it with your real estate agent so no one’s time is wasted looking at homes that don’t match what you’re in the market for. Part of your budget will also have to be set aside for the down payment and closing costs which are discussed in the next section.
Down payment & closing costs
As a first time home buyer, the idea of coming up with a 20% down payment may seem impossible. On a $200,000 home, the average closing costs will be $900 to $1,200 that also needs to be budgeted for.
As a first time home buyer, you’re at a disadvantage since you don’t have a previous home to sell and generate money to go towards the purchase of the next home. And unless you’ve been saving for years, you probably don’t have that amount of money available.
This doesn’t mean there’s no hope for your dream of owning a home. In New Mexico, there are many programs available to help first time home-buyers with a down payment. I recommend a first time home buyer visit the New Mexico Mortgage Finance Authority. They have programs that make buying your first home possible and less stressful. If a home buyer meets the criteria the MFA can even provide the money for the down payment.
If you are a veteran a VA loan requires no down payment at all and does not require mortgage insurance. Other low down payment plans often have higher mortgage insurance costs which increases the monthly mortgage payment. Make sure you explore all the programs that might be available to you and remember, making use of one program does not automatically exclude you from others.
For many of us, it is easier to ignore our not so perfect credit history, than have the difficult conversations around personal debt. But when you’re looking to buy your first home you need to take an honest look at your credit score early on in the process.
Before you set a budget, contact real estate agents, or talk to a mortgage lender you should get your annual credit report and see how it might affect your chances of owning a home. This is something you should be doing annually regardless of your real estate intentions, but, as mentioned few of us enjoy facing our financial truths.
To get an annual report of your credit score visit www.annualcreditreport.com. Once you have your report inspect it for any blemishes and figure out what you can do to correct them. If there are errors make sure you contact the credit reporting bureaus and begin the process to correct those errors. Get on top of these situations early in the home buying process, as they may take weeks, months, or even years to repair. Blemished credit can stop you from getting a mortgage or making a down payment.
The last thing to do before contacting a mortgage lender should is collect and organize the documents that will be necessary for the loan pre-approval process.
Documents may include:
- Pay stubs dating back 2 years
- Bank account statements dating back 2 years
- Tax returns for the past two years
If you have a line of credit or any current loans gather documents pertaining to those. Last but not least it might be helpful if you had the contact information of past landlords. It seems like a lot of information, but keep in mind you will probably be borrowing hundreds of thousands of dollars.
Lifestyle & Location
Your credit is in good shape, you’ve set a realistic budget, set aside money for a down payment and the closing costs, and gathered up the necessary documents. Time for the fun part, house hunting.
When it comes to buying a home, DON’T buy on trends. Don’t buy a home because it’s in a trendy neighborhood or one about to become trendy. Don’t buy a particular style of home because that’s what the people your age in New York or San Francisco are buying.
Buying a home and moving, while exciting, is a ton of work. Chances are you’re not going to want to do it more than once every five years. On average most people stay in a home for 13 years. What will be trendy in 13 years? When looking for a home ask yourself what is important to me now, 5 years from now and 10 years from now? What size family will you have in 13 years? You don’t want to outgrow your home in two years! What will you want to live close to in 13 years? Just because being close to a downtown seems convenient now, doesn’t mean it always will.
An important part of buying a home, whether your first or your last, is connecting with a real estate agent you like and trust. If you’re considering moving to rural New Mexico contact us at La Paloma Real Estate.