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4 Ways to Avoid Debt When Shopping for Your First Home

by Marquette Turner Luxury Homes

in Features, Money & Business, Variety

Shopping for your first home can be an exciting experience—it’s a huge milestone in anyone’s life and can come with a lot of freedom. However, buying a home can be a challenging process if you’re not financially prepared to take on this type of responsibility. Here are four ways to prepare your finances for homeownership and avoid going into debt.

1. Have enough saved up for a down payment

Perhaps one of the most crucial ways you can avoid debt when shopping for your first home is to have enough saved up for a down payment. Try to have at least 20% of the home’s price covered before making an offer on a home. You can start saving for a down payment by setting aside work bonuses, opening up a savings account, or working a second job for extra cash. If you are already in debt, there are tips on how to clear it faster at CreditSmart.

2. Create a budget

Another thing you should do early on in the home buying process is to create a budget. By doing this, you’ll be able to understand how much home you can afford and not overpay for a house. Have a firm dollar amount set and look at properties that cost less than the amount you were approved for. Though it might be tempting to make a high-priced offer on a beautiful house, you shouldn’t let your emotions take over. Shop below your pre-approval amount to generate some wiggle room for bidding and have your realtor help you find houses within your budget.

3. Determine what type of mortgage loan works for you

There are two main mortgage loan options that most first-time home buyers consider: a 15-year mortgage and a 30-year mortgage. Both are similar, with the main difference being the term of years for each loan.

With a 15-year mortgage, you’ll be paying higher monthly mortgage payments at a lower interest rate. The benefit to this is that you’ll get to build equity faster and be debt-free after 15 years. If you can’t afford high monthly payments, opt for a 30-year mortgage. With this type of mortgage, you’ll be making lower monthly payments and can put more cash toward savings. The downside to a 30-year mortgage is that they usually come with a higher interest rate because it costs banks more to make shorter-term loans.

4. Save for closing costs

Most first-time home buyers underestimate the expenses involved in the home buying process and don’t have enough saved for closing costs. Closing costs include a variety of expenses above the purchase price of your property and can include an attorney fee, an application fee, a home inspection, homeowners’ insurance, and recording fees. In general, homeowners will pay between 2%–5% of the purchase price of their home in closing costs. Plan on saving three to six months’ worth of living expenses to afford these costs.

In addition to closing fees, you’ll also want to budget for any repairs that were uncovered during a home inspection and have to be made after closing. If your home inspection reveals that the dishwasher isn’t working or your plumbing has problems, your home warranty can save you money onrepairs or replacements. If you don’t have any money on hand for repairs, and you don’t invest in a warranty, you’ll have to scramble and pay out-of-pocket for any repairs or replacements, so make sure you have cash saved up for these situations.

Bio: Kay Carter is a writer from Raleigh, NC. When she isn’t writing about interior design or real estate, she enjoys reading, traveling, and practicing photography

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