Are you a recent grad thinking about buying your first home? Tread carefully. Although the historically low rates for a home may give reason to salivate, you want to take a closer look. With the FED’s plans to slow down the “quantitative easing” (QE3) over the next year as announced last month, we may soon see long-term interest rates going up. It may seem like a good idea to jump on the low interest rates before they go up. However, if you have student loan debt, it is critical that you consolidate your loans now. With that said, here are some considerations to ponder before buying your first home.
LOW RATES DOES NOT EQUAL AFFORDABILITY
Just because rates are low, doesn’t mean you can afford it. You may not even qualify to receive a low rate. Everything depends on your credit. If you have not established several years of good credit history and some money for a down payment and closing costs, you probably won't qualify for a mortgage for Scottsdale real estate.
LONG-TERM OR BUST
Do NOT buy, if you don’t plan on staying more than at least 5 years - sometimes longer. Long-term is the only way to think about owning a home in Scottsdale. Careful planning and smart choices will ensure that you don’t take on more than you can afford. If you have credit card debt or auto loan payments, these expenses including your mortgage should not exceed 36% of your income.
LESS IS THE ‘NEW’ MORE
Be realistic and choose quality over size. Having a large home means larger utility bills, more maintenance costs, higher property taxes, etc. It’s much better to purchase quality than go for the big block home. Your first home should never be a fixer-upper unless you know how to restore property or you know someone in your sphere of family and friends that does it for a living. Again, go for the best quality and take the time to plan every financial step.
20 PERCENT IS THE MAGIC NUMBER
If you do not have 20% cash savings toward a down payment, there are other programs you can use. But anytime you get a mortgage with less than 20% down, you will pay an extra "mortgage insurance" fee. This is not homeowners insurance, it is a monthly fee to guarantee your lender that if you foreclose they'll get at least the difference between what you put down and 20%.
You will need to save toward a down payment. As everyone knows, the rules of qualifying for a loan have changed since the housing market bust. Despite the recent shift to a 10% down payment and even lower, you'll need to have money left after your purchase to live on and have some savings in case of an emergency. Remember, the way the real estate sector got in trouble in the first place was with lax financing qualification rules, and those financial choices impacted the economy. Not having a significant down payment will also increase your interest rate, closing costs, and monthly payments.
On a final note, it took you several years of hard work and planning to obtain your degree, the same effort is required to plan your financial life in order to buy your first home in Scottsdale. There are no shortcuts to this process. Above all, your focus should be consolidating all of your student loans now while the interest rates are low, paying off your credit card debt, establishing your credit history and saving until you have enough toward a down payment, closing costs, and some left over.
Maxime Rieman is a writer for NerdWallet. She spends most of her time helping fellow recent grads find affordable car insurance and ways to get out of debt.Posted by Judy Orr on