Getting ready to buy your first house? Money Girl helps you make one of the biggest purchases of your life with 7 tips to get prepared, save money, and become a happy homeowner, no matter your age.
Tip #5: Save Your Down Payment in the Right Place
Once you begin saving money for a house down payment, you’ll probably get a little anxious about where to keep it. You might be tempted to invest it with the hope of turbocharging its growth.
But financial markets are volatile in the short term, which means you could lose all or a significant portion of your money right before you need it. Instead, tuck your down payment savings in a high-yield, FDIC-insured savings account.
That ensures your money will be completely safe, give you flexibility, and earn some interest to boot. Online banks typically offer the highest interest rates because they don’t have as much overhead as institutions with local branches. However, local credit unions can be competitive—if you qualify for membership.
Tip #6: Get Pre-Approved for a Mortgage
Once you’re ready to become a homeowner, have good credit, and plenty of down payment funds, the next step is to get preapproved for a mortgage. Not only does a pre-approval tell you how much you can afford, it indicates that you’re a serious buyer who could close the deal quickly.
Depending on the seller’s circumstances, being able to close quickly could give you a huge leg up. They may accept your offer instead of a higher one that would take longer to close.
But remember that just because you’re pre-approved for a certain amount doesn’t mean you should borrow it. You’ll have other costs every month, in addition to the mortgage payment. These are called the PITI, which stands for principal, interest, taxes, and insurance:
- Principal is the repayment of the amount you borrowed.
- Mortgage interest is the payment to the lender for the use of the money you borrowed.
- Home insurance protects you and the lender against damage from many (but not all) natural disasters, theft, vandalism, and legal hazards.
- Property taxes are annual city and county assessments.
Taxes and insurance can be rolled into your mortgage payment and then paid by your lender on your behalf. Additionally, you’ll have to pay utilities, maintenance, and perhaps homeowner association dues.
Don’t make the mistake of stretching your finances too far to buy a home. It may leave you house-rich but cash-poor and unable to save for other goals, such as retirement.
Tip #7: Be a Savvy Negotiator
When you make an offer on a home, use your poker face with the seller or real estate agents. As I’ve mentioned, in real estate everything is negotiable. So, be interested, but not too eager.
Most sellers expect you to negotiate on one or more factors of the deal such as purchase price, potential repairs, and closing costs. Always make a purchase offer contingent on the results of a professional home inspection, a C.L.U.E. home insurance claim report, and additional evaluations customary in your area, such as a termite report. Do your due diligence carefully.
Before the closing, you should receive the Settlement Statement, Form HUD-1 from the real estate agent, closing attorney, or title company. Review it carefully, ask questions about charges you don’t understand, and make any necessary changes.
The closing agent will have a stack of documents for you and the seller to sign. You can handle it in person or remotely through the mail. The mortgage and deed will be recorded in the county records registry and you’ll receive a copy of everything. And finally, you can celebrate becoming a homeowner.
It’s easy to get swept up in the beauty of a home, its décor, its neighborhood, or the new lifestyle that you envision there. But take a step back and view every real estate purchase as an investment, even if it’s going to be your home sweet home.
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