Texas First Time Home Buyers: Key Financial Details to Keep in Mind

A Report from the National Association of Realtors states that in the year 2015, millennials in the 18-34 age group compose the largest group of home buyers in America (32 percent of homebuyers), and the number is slated to grow further with every passing year. If you fall in this category and wish to ditch that tiny rental apartment, buying your first home is one of the biggest financial decisions you will ever make. To help you make an informed buying decision, here are some key financial details to keep in mind.

Align your Finances

Before you take a plunge into a home buying process, make sure your funds are aligned, and all dues paid on time. A good credit score, bill payment history, and maximum debt-to-income ratio of 43 percent, are prerequisites for qualifying for home loans. The prerequisites, however, vary from lender to lender. Borrowers with low debt income are more likely to qualify for home loans. In addition, if you are planning to buy a home in the near future, now is the right time to enhance your savings to cover the down payment on your home and other costs involved. Although there are several loan programs that require low down payments, adequate savings can help buyers cover their moving expenses and closing costs.

Know How Much you can Afford

To calculate your expense limit, get pre-approval from the lender. Pre-approval is an evaluation of a potential borrower by a lender that involves a thorough look into borrower’s credit report and score. It determines whether the borrower qualifies for a loan and how much the lender would be willing to lend. In fact, it has become something of an obligation on the part of borrowers as some real estate agents ask for a pre-approval before showing you the property. Having said that, the borrower should also take a closer look at the stats and do their maths to know how much can they actually afford. In many cases, homebuyers pay their monthly payments leaving them with no funds to take care of other expenses.

Don’t Ignore the PMI

If homebuyers are unable to afford 20 percent of the home value as down payment, they are asked to pay for the primary mortgage insurance (PMI). A PMI is a risk management product that protects lenders against defaulting borrowers. Most conventional lenders charge a PMI fee if borrowers pay between 3 percent to 19 percent as they are considered high-risk borrowers. The PMI usually increases the mortgage payment by 0.25 percent to 2 percent per annum. Also, as PMI is directly proportional to the loan amount, the fee increases with the increased loan amount.

Factor in Closing Costs

According to ClosingCorp, two-third of millennials planning to buy a home are not aware of closing costs, and it comes as a shock at the time of closure. Often known as settlement costs, closing costs are the compilation of all the fees and price paid to complete the real-estate transaction, such as title insurance, title searches, survey, taxes, and credit report charges, among others. Closing costs add up to 2 to 5 percent of the purchase amount. It is important to work out all the details related to closing cost before you make an offer at any home.

The Bottom Line

First time home buyers can get overwhelmed by the tedious loan borrowing process. Educating yourself on the process and fees involved helps you overcome several hurdles that may come your way during the buying process. Lastly, if you are planning to buy a property in Texas, consult a Texas home loan and mortgage company before choosing any loan. Carefully evaluate all the fees involved in the process before making a final decision

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