Owning 101: Five Things to Consider When Saving for Your First Home
The best piece of advice you can receive when considering your first home purchase? Coldwell Banker Preferred affiliated agent Mark Mehler says it’s all about selecting the right person to help guide the process. You need someone who knows the local market and who is truly looking out for your best interest and, in turn, offering the right advice. “The right professional will listen to understand, not listen to respond,” Mehler says.
There’s a lot to consider before making the jump from renter to homeowner. So, we asked the real estate professionals at Coldwell Banker Preferred to guide first-time buyers through the process. Read their answers to some of the most frequently asked questions below.
How much money should you have saved for a down payment?
“In a perfect world, everyone would have 20 percent to put down on their home, plus closing costs and reserves,” says Mehler. This should eliminate any lender-required Private Mortgage Insurance payments (PMI) which are often put in place to protect a lender from losing money. Adding a PMI can significantly increase your monthly mortgage payments — by 0.3 percent to up to 1.5 percent. Often, your agent will be able to provide mortgage lender referrals.
How much income should you be making each month to cover your mortgage payments?
Coldwell Banker Preferred agent Michael Scipione encourages you to stay within your means. Your monthly mortgage should not exceed 40 percent of your monthly income after taxes. Additionally, Mehler suggests taking your credit score and monthly liabilities into consideration, in addition to your monthly income. Thinking about the whole picture will help you better understand what kind of home you can afford.
What are some of the best programs to help first-time buyers?
Consider an FHA loan, which is a mortgage insured by the Federal Housing Authority. Typically, this will allow for a low down payment of around 3.5 percent. A property with a 10-year tax abatement can reduce your monthly payments substantially, depending on the taxes. Coldwell Banker Preferred agent Richard Dolson agrees, “FHA is the go-to first-time home buyer plan. With their debt ratio guidelines, the program is designed to make sure you can afford your home.” He also suggests checking with your mortgage representative to see about any available grants.
Is it smart for a young person with college debt to consider buying a home?
“I absolutely feel that homeownership is more valuable, even if you have student debt or debt in general,” says Coldwell Banker Preferred agent Louise Marzulli. Consider the fact that you can control the amount you will be paying monthly, as opposed to rentals which are subject to rate increases. “You can build equity and the property value may increase and have possible gain,” she says. “Renting will not allow for this and you are not getting a return on monthly payments.”
A lot of factors go into buying your first home. While the process might seem daunting at first glance, taking a few preparatory steps like saving for a down payment, knowing your budget and applying for the right loans, will help make the next steps seem a little less scary and more manageable. By working with a Coldwell Banker Preferred agent who knows the market and understands your goals, you will have expert guidance throughout the process.
For more information about buying or selling a home in the communities of the Greater Philadelphia area and the Delaware Valley, visit Coldwell Banker Preferred online at www.coldwellbankerhomes.com/philadelphia.This is a paid partnership between Coldwell Banker Preferred and Philadelphia Magazine's City/Studio