Considering a move to St. George? Wonderful! This beautiful city offers a plethora of gorgeous views, a variety of recreational activities, and number of educational and employment opportunities that will make living here a dream come true.
However, if you're a first time homebuyer, you may need a quick reminder about some of the important details of funding a home. As you shop for houses, don't forget the following 6 things.
1. Get Pre-Approved for a Loan
Most beginning homebuyers don't have the assets to pay for an entire home in cash, so you likely will need a loan to cover the costs. Although you may be able to anticipate how expensive of a home you can afford based on your needs and budget, a pre-approval letter helps solidify your estimate and gives you an edge over other buyers.
Pre-approval letters show sellers that you feel serious about buying, and it holds more weight than a pre-qualification letter. Talk to your mortgage lender before you browse homes in St. George.
2. Spend Less than 30% Your Gross Income
If you have good credit, your mortgage lender will likely approve you for the largest loan possible, but that doesn't mean you should push those boundaries.
As a rule of thumb, you'll want to spend no more than 30% of your gross income on housing. If you feel more conservative, Dave Ramsey, personal money-management expert, suggests keeping that number to less than 25%. If you can, you'll also want to take out a 15 year loan rather than a 30 year one.
What happens if you spend more than that amount? Too much of your income will go toward your home rather than other necessary items in your life. You won't have the ability to save or pay for repairs, furniture, education, cars, medical bills, vacations, etc. Should an emergency happen, you may find yourself in ever-rising debt.
3. Bring a 20% Down Payment
Although some mortgage lenders allow you to buy a home with little to no down payment, small or nonexistent down payments often lead to bigger problems.
If you opt for a small down payment, you'll likely take longer to pay your loan, which means you'll pay more money in interest. For example, if you were to take out a 30 year loan for a $200,000 house at a 4.5% interest rate and no down payment, you'll pay $164,814 in interest.
But if you took out that same loan at that same interest rate and paid a 20% down payment ($40,000), you'd only pay $81,677 in interest. That's more than a 50% decrease.
Additionally, Felix Salmon, financial journalist, estimates those who only pay less than 20% on their down payment are more than twice as likely to become delinquent on their mortgage as those with a solid 20% down payment.
4. Have an Emergency Fund
As you save money for a down payment, don't forget to save money for emergencies. You don't want to drain your entire bank account paying for a home only to realize that you need to make last-minute repairs or replace the carpet.
Mari Adam, of Adam Financial Associates, explains, "These things happen. You can't always be prepared for the emotional toll or the hassle but you can be prepared to handle the bills."
In general, you'll want to have at least 3 to 6 months of post-tax income set aside for emergencies. If you were to make $3,000 a month after taxes, then you'll want to have $9,000 to $18,000 in emergency funds.
5. Research Grants and Other Funding
When you add mortgages, down payments, and emergency funds to additional costs such as property taxes and homeowner's insurance, you may feel weighed down by the numbers. Although you want to buy a home, you simply don't see how you can afford one.
Fortunately, you don't have to pay for everything on your own. The city of St. George offers $10,000 grants to first time homebuyers. This is a no interest, no monthly payment loan which you can use to cover your down payment or closing costs. And you can repay the loan once you sell or refinance the home years down the road.
Keep in mind that you do have to meet certain requirements to qualify for the loan:
- The home must be within city limits
- The home cannot be manufactured or under construction
- Maximum purchase price is $247,368 for single family homes and $131,955 for attached homes and condos
- You must occupy the property
You can read more about the qualifications here.
And this isn't the only grant available to first-time buyers. A little extra research may uncover further funding to help you settle into your new home.
6. Let Logic Rule the Roost
Now that you have your finances covered, you finally feel ready to shop for a house. But as you do so, set your emotions aside. If you fall in love with a cozy condo or spacious single family home, you'll be more likely to make poor financial decisions. Learn to recognize a great house for a good value rather than obsessing with perfect two-toned paint or immaculately trimmed trees.
If you need additional help finding the perfect St. George home for your budget, talk to a real estate agent for advice.