Should First Time Home Buyers Start Small?
November 14, 2017 | Elite Realty
The process of purchasing a home for the very first time can be very overwhelming with regard to finances especially. If you add a large mortgage to vast amount of paperwork and negotiations, there is a great deal to consider. Taking on such a significant financial responsibility and establishing just how much a buyer can truly afford is a big part of the process. The question that always comes up is with regard to how much one should extend their budget and whether to start with a starter home or invest in something larger and newer from the start. This is not something to be taken lightly.
“The most important factor in your success as a first-time home buyers is to live within a budget,” says Michele Lerner, author of “Homebuying: Tough time, First Time, Any Time.” “It’s crucial to look realistically at your assets and your current and future income to evaluate what you can comfortably afford.”
There are in fact certain circumstances in which extending one’s budget to invest in something larger and newer from the start could be considered a good option. An example of such an instance would be if the home buyer is about to finish college and knows that they will have a substantial increase to their income in the next few years. Another thing to consider when investing in a larger and newer home from the start, beyond the mortgage payment, is that costs (maintenance, home repairs, utilities) for a larger home will be higher overall.
“It is tempting to spend down to your last dollar to get the home you want, but that’s a risky proposition,” says Lerner. “Owning a home can bring some unexpected surprises that renting doesn’t, such as a plumbing bill or a leaky roof.”
If potential home buyers determine that their needs will not be met in a starter home, the best option may be to wait it out a bit longer, until their income increases or they have saved a larger amount for the down payment. Industry experts say, typically, it is best to stay in a home for five to seven years in order to recuperate one’s investment and have some time to build equity. This may mean looking ahead to see if the house that is being considered at this moment in time will be suitable for five to seven years, potentially.
In high demand markets, however, it may make sense to purchase a home that is less than perfect when meeting one’s needs. Some will buy a house just to get into the housing market and potentially reap rewards from an appreciation in value, even without remodeling the home.
There are various down payment assistance programs for first-time home buyers. If one is considering the purchase of a smaller and/older home, to potentially remodel it, housing industry experts suggest having a conversation with a potential lender regarding the financing of the purchase and the renovations project within a single loan.