A starter home can be the start of something big for your hopes, dreams and financial future! Mr. Cooper knows that first-time buyers are in “research mode” because they want to do things right. Knowing a few things that they “don’t teach you in school” about how to be a smart first-time buyer can smooth out the bumps. Take a look at the eight things to know about buying a starter home that actually starts you off on the right path!
It’s Only a “Fixer-Upper” If YOU Can Fix It
Don’t buy a home based on what your favorite stars from DIY home-improvement channels could do with it. Buy a home based on what you’re capable of doing both financially and physically to tap into a home’s beautiful potential. While most of us can recognize a home with beautiful “bones” in a great neighborhood, it’s not a matter of snapping our fingers for the big “reveal” at the end of a makeover. Decide if you’re in a position to take out the extra loan amount needed to cover renovation costs. If you’d like to try a DIY renovation, take time to work out the true cost and time investments needed to turn a property into your dream starter home!
It’s Important to Be Real About Square Footage
Starter homes are great for getting into the market without getting in over your head! However, it’s important to be realistic about just how well the square footage of a house you’re ready to commit to will serve you in two years, five years or 10 years. Things like starting a family, taking on a roommate for extra income or pivoting to a work-from-home situation that requires a home office can all make a home feel like it’s shrinking. Decide if being a little cramped is worth being able to get into a hot market with great potential. It’s also important to consider the possibility of adding on versus moving. Is there enough property to support an addition if you decide you’ve fallen in love with the area? It all comes down to running through different scenarios that take into consideration your future needs and financial allowances.
PMI: Get educated on what it is and why it’s important
Have you read up on PMI yet? PMI is private mortgage insurance that’s required if you don’t put down 20 percent. It ultimately adds to the total cost of your mortgage. However, PMI won’t stick around for the life of your loan. PMI vanishes once your mortgage balance reaches 78 percent of your home’s original purchase price. Many first-time buyers find PMI to be more than worth it if it allows them to get into a home faster with a smaller down payment.
Love at First Sight is Rare
Your strategy should be to look at as many homes as possible instead of having your heart set on stumbling upon “love at first sight” within the first few days of your property search. Knowing what you want sometimes takes touring homes that very clearly demonstrate what you don’t want. You’ll only benefit from seeing as many homes in your price range as possible to be able to spot a true gem when you find one!
Your Realtor is Just One of Your Important Relationships
Yes, it’s important to find a trusted real estate agent with the knowledge and professionalism needed to help you find great properties, make offers and get more of what you want from a deal. Many first-time buyers make the assumption that this is the only relationship that can help them reach their goals. In reality, building a relationship with a trusted, experienced mortgage lender is important for getting access to financing options that fit your first-time-buyer goals. A good lender will also take time to explain the specifics of your loan to help you feel empowered as a “newbie” making a plan for smart long-term financial planning. Knowing what your loan is all about can help you to feel empowered to do just that!
Mortgage Discount Points Can Help You Get a Lower Interest Rate
It’s not all about whatever rate a lender is advertising. Mortgage discount points are a premium that you pay at the beginning of your loan in exchange for a lower interest rate. If you have healthy savings today, you may be able to pay a lower rate in the long term just by paying in points up-front. This is generally a good option if you think your starter home could be something of a forever home.
Your Mortgage isn’t Necessarily Set in Stone
It’s easy to feel like you’re locking into a lifelong commitment when you obtain a mortgage. However, you could have the opportunity to refinance down the road to replace your first mortgage with a new one that might offer lower monthly payments, an overall lower rate and the ability to cash in on your equity. Yes, the secret that not every first-time buyer who is eager to get into a starter home today realizes is that this simple home could become one of your most important financial vehicles!
The Debate Over Renting or Buying Looks Different Based on Where You Live
Renters are tired of hearing friends and family brag about monthly mortgages that are lower than what they’re paying in monthly rent. In fact, the desire to pay less while getting more is often the driving factor for many first-time buyers seeking starter homes. The low affordability factor in big metro hubs could make renting a better option until you’re more established in your career. There simply may not be an inventory in your price range if you’re looking for what most Americans consider to be classic “starter home” prices. The benefits of buying instead of renting include:
- You’re one year closer to never paying rent or mortgage payments again with every year that you pay down your mortgage!
- There could be tax benefits to owning.
- You’ll never deal with landlords again.
- You don’t have to deal with rent increases. You can make your financial plans based on a set monthly amount. Just keep in mind that property taxes or insurance premiums can increase over time.
Buying works if you can do it without getting in over your head. Ultimately, some people find that sticking it out as a renter in a city helps them to save more money. Those savings could help you to buy a dream starter home when you decide to relocate in the future.
Ready to Hunt for a Starter Home?
This is where it gets exciting! Going in with your eyes wide open is the most important part of finding a starter home that starts a life of good decisions! Get a little closer to your starter home by using Mr. Cooper’s quick mortgage calculator for discovering how much you can afford!