Bedel Financial’s Guide for First-Time Homebuyers

May 21, 2018

Spring is here! That means it’s primetime for the housing market. According to, the nation’s largest new home search site, nearly twice as many home shoppers turn out in June than they do in January. It’s exciting to shop for a new home – especially when it’s your first! But keeping the following tips and guidelines in mind when you’re shopping will help you get a better financial deal.

Don’t Get Caught in a Bidding War

Some housing markets are red hot. In a red hot housing market, sellers have a greater chance of receiving their asking price because buyers are competing with each other. Be careful when entering a bidding war. You may end up with the house of your dreams and the mortgage payment of your nightmares! According to CoreLogic, a real estate information provider, almost one in five mortgages originated over the past winter have monthly payments greater than or equal to 45 percent of monthly income. The rule of thumb is to keep mortgage payments no higher than 28 percent of your monthly income. Know what you can afford and stick to that price range!

Avoid Private Mortgage Insurance

The age-old rule of home buying is to make a down payment of at least 20 percent of the purchase price. This shows your mortgage lender that you are serious about home ownership. If you fail to put 20 percent down, you are subject to private mortgage insurance (PMI), which is an additional amount added to your monthly mortgage payment. The PMI goes away once you have 20 percent equity in your home.

Fortunately, not all buying scenarios require 20 percent down. The Federal Housing Authority (FHA) insures loans in which the borrower needs just 3.5 percent for a down payment. Keep in mind that PMI is required throughout the life of the loan. Some lenders also offer special mortgages for certain types of borrowers, such as new medical doctors or veterans.

Set Aside Dedicated Funds

Saving for a down payment takes diligence and commitment. Don’t cut corners by dipping into your emergency fund or wiping out all of your savings to fund your down payment. Homeownership involves much more than making a mortgage payment. The property taxes, home-owners insurance, repairs, lawn care and furnishings won’t pay for themselves!

When it comes time to buy your first home, don’t start without having a game plan. Make sure your savings account contains adequate money earmarked for a down payment, and stick with homes in your price range. Your wallet will thank you!

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