How to be a financially-fit first time home buyer

Most people aim to buy a house one day. For most, it’s the biggest financial commitment you will make in your lives so it’s important to approach it wisely. By doing your research and following a few guidelines, you’ll be able to turn the great American dream into a reality.

Be clear on what you can afford

Establish how much you can afford to pay and what sort of property and location will suit you before entering the real estate market. Consider your lifestyle and research the types of properties available to you at your price point.

Some of the best ways to get educated about your local market is to visit open houses, talk to real estate agents, and view past sales for the neighborhoods and areas you are interested in.

Make a smart resale investment. Make sure to look at the access to transportation or highways nearby. Amenities and lifestyle features such as a pool, trails, sidewalks, and clubhouse can play a large factor in resaleability.  Ensure that your property will be attractive to future buyers when you decide to upgrade.

Review your finances

Before approaching a mortgage lender is always a good idea to review your personal finances. Create a spreadsheet or calculator of your Income and expenses. Including your reoccurring bills, groceries, and entertainment. Small things such as app purchases are some of the common items we see missed when assessing monthly spending. Check out your Venmo or Paypal account as they are typically connected to your spending habits. Ultimately, you want to build a budget and create a clear path to financial health.

When buying a home you will need to expect certain payments and costs associated with the home. Factor in upfront and ongoing costs such as closing costs and prepaid when closing on the home. Recurring costs can be but not limited to utilities, insurance, monthly payment, and homeowners association dues.,

Build up your savings account

One of the most common myths about buying real estate is the 20% rule. You no longer need a 20% down payment to purchase a home. Certain programs go as low as 3% or 0% down to buy a home. Be aware of PMI (Private Mortgage Insurance) if you are putting less than 20%.

It is best to start building your savings muscle by establishing regular savings habits. Lenders may request to see your history of savings to underwrite the mortgage.

Get lean on your spending habits. You can share housing with a friend or rent out any additional bedrooms. Move back home with parents to save on rent. Start cooking dinner at home and skip going out regularly.

The Alabama First Time Home Buyers Savings Account is a huge benefit to First Time Home Buyers or buyers re-entering the real estate market after 10 years. This account allows for tax savings at the state level. You can obtain this type of account at any local banking institution in the state of Alabama. Individuals can deposit up to $5,000 per year for 5 years for a total of $25,000 in tax savings. Individuals can deposit up to $10,000 per year for 5 years for a total of $50,000 in tax savings. The deposits and interest earned are tax-free and will reduce your state income tax.

Pay down debt & tidy your credit history

It's always a good idea to get a handle on your debts. Pay down personal debts such as credit cards and store accounts. A good practice is to obtain a credit report if you have multiple credit cards, review any late payments, and know where you stand credit-wise. You may also find an opportunity to dispute any errors. Reviewing your credit report will also bring awareness of any unnecessary accounts so can close them. Ensure that any regular payments are up to date.

Paying down your debts and minimizing the number of accounts you have will not only allow you to borrow a little more but also give you a bit of financial breathing space in your budget. This will be important when interest rates inevitably start to rise.

A helping hand

Alabama residents have access to programs that aren’t available in other parts of the country and help reduce the cost of ownership. The Alabama Housing Finance Authority (AHFA) offers programs with low down payment requirements and reduced private mortgage insurance (PMI).

  1. The Step-Up Program: AHFA offers up to 3% down payment assistance and a mortgage insurance discount with a conventional loan. This is subject to elgibility requirements.
  2. FHA loan - 3.5% down
  3. VA and USDA loan - 100% financing 

More Alabama rest-Time Home Buyer Programs:

If you have any questions about getting financially fit during the buying process or anything else to do with real estate, give us a call or send an email. We'd love to help you.


#1 By Expert Mortgage Broker at 8/11/2022 3:23 AM

Thanks for the post.

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