5 Reasons Why I’m Glad I Bought a Starter Home

5 Reasons Why I’m Glad I Bought a Starter Home is a post originally published on: Everything Finance – Everything Finance – Its all about Money!

Buying a new home is a big decision. The most common debate I hear about homebuying is whether you should buy a starter home or a forever home. I think it all depends on where you are in your personal life and in your financial journey.

For first-time home buyers though, I’d almost always recommend buying a starter house. Just three years ago, my husband and I purchased a 3-bedroom, 1.5 bath one-floor starter home and I’m very pleased with that decision.

Here are 5 reasons why I’m happy that my husband and I bought a starter home and how it’s helped us improve our finances overall.

1. Lower Purchase Price

It’s no secret that the biggest appeal to buying a starter home is that it’s often cheaper. Some starter homes are older or may even need some work. They’re also smaller than a forever home so it’s likely that your family will outgrow the home in a few years. In fact, most people only reside in their starter home for an average of 5 years.

While you may get preapproved for a higher mortgage amount, you don’t have to borrow up to that limit. With a starter home, we were able to save a lot of money since the home was cheaper. This also meant we could make a smaller down payment and still have a reasonable monthly mortgage that wasn’t overwhelming.

It’s so important to avoid having your whole income tied up in your mortgage payment. Our starter home has allowed us to fulfill the dream of becoming homeowners but still have money to save, invest, vacation, etc.

2. Less House to Clean and Maintain

There have been days where I wish I had more space. Then I realize that cleaning and maintaining a bigger home would be very difficult for us right now. It is challenging enough to clean, furnish, and make sure we’re doing the proper maintenance on our starter home right now. With a bigger home, I’d have to ask myself questions like:

Should we hire someone to help us keep up with the cleaning?

Will we need to buy additional tools to take care of the lawn?

How will we find the money to maintain more systems that come with a bigger house

Right now, our yard is a decent size and whenever my husband wants to clean the gutters, we can simply go on the roof of our ranch-style home with a ladder and get the job done rather quickly.

By remaining in our modest home for now, we are saving a lot of money and time so we can actually enjoy the space we do have.


Here are 5 reasons why I'm happy that my husband and I bought a starter home.
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3. We Learned How to Fix Stuff

Buying a starter home has also taught my husband and I how to fix some things and DIY when necessary. Yes, if we bought a newer dream home, we may not have had many repairs to make but there’s also no guarantee of this.

Plus, we both learned some valuable ways to save on home repairs and work with contractors. Owning real estate someday is a goal we both have so it’s been nice to see how we can fix up and maintain a smaller home while also meeting other financial obligations.

RELATED: How to Budget For Home Improvement Projects

4. Our Home’s Value Did Increase

Contrary to what some people may believe, your starter home’s value can increase over time – especially if you make valuable updates to the house. Having a starter home doesn’t have to mean you own a money pit. If you maintain the home and make strategic improvements, you could increase your equity by a lot.

Initially, we made some changes like waterproofing the crawlspace, replacing all the carpet with wood flooring, installing a backsplash in the kitchen, and getting rid of some trees in the yard to start. Add in the fact that property values in our area have also increased, and in just 3 years our home’s value has increased by 25%.

This means that whenever we do sell, we’re bound to make a nice profit.

RELATED: 12 Easy Ways to Add Value to Your Home This Year

5. Great Way to Test Out Homeownership

Finally, buying a starter home is a great way to test out homeownership. You may have always dreamed of becoming a homeowner, but there are some serious pros and cons to consider. When you buy a starter home, you experience all of those benefits firsthand. You own a property and can paint the walls or even knock a wall down to customize your home as you set fit. On the other hand, things will break, taxes will increase, and surprise problems will arise.

I find comfort in knowing that if my husband and I ever want to go back to renting for a while, we can sell out home easily. There is always someone who will buy a starter home. If you find that we love homeownership despite the drawbacks, we can always upgrade to a bigger home in the future. Either way, we’ll have some priceless homeowner experience under our belt.

Summary

Buying a starter home was one of the best decisions I ever made. Yes, I’ve made some costly mistakes during the process and am still learning. But I don’t feel trapped financially at all. We still have money left over to save, pay down consumer debt, and just live our lives.

I’ve also learned how to be more content and make the most of the space we do have here. Despite all the house projects and seeing our mortgage payment increase a few times due to property tax changes, I can confidently say that we are in a better financial place than we were 3 years ago.

Would you ever consider buying a starter home? Why or why not?

5 Reasons Why I’m Glad I Bought a Starter Home is a post originally published on: Everything Finance – Everything Finance – Its all about Money!

Source: everythingfinanceblog.com

How to Financially Prepare to Buy Your First Home

Home-buying season is coming up. With the warmer weather approaching, home buyers are eagerly waiting to find their dream place.

Since buying a house is typically the biggest purchase you’ll make, preparing your finances can give you a significant win. For example, if your credit score is high enough, you can get more competitive rates with mortgage lenders.

Besides saving up for the down payment, there are other costs with the home buying process.

If you’re looking to become a homeowner soon, let me show you how to prepare your finances so that you can get a better deal on your house and still have money left over for other expenses!

Buying a House: More Than Just the Down Payment

While most attention is given to getting a good-sized down payment ready, there’s more involved than just your mortgage payments. 

Lenders are looking at factors like income, debt to income ratio, but a huge factor is also your credit score. Your credit score is based on your credit reports. You have three credit reports and scores from each of the credit bureaus – Experian, Equifax, and TransUnion.

Want the Best Rate? Boost Your Credit Score

While the exact algorithm isn’t publicly disclosed, we do know the key factors that go into calculating your score. 

  • 35% Payment History
  • 30% Amount Owed
  • 15% Length of Credit History
  • 10% New Credit
  • 10% Types of Credit

Looking at how things are weighted, if you want to make the biggest impact on your credit score, you need to focus on your payment history and keeping your debts in check.

Let’s see how you can improve them which can help you boost your score before you start your home search.

The first thing you need to do is to get a copy of your credit report and make sure that it is accurate. Believe it or not, there is a chance that your report may have a mistake. In fact, it’s been estimated that more than 20% have an inaccuracy on their credit report. While it might be a minor detail like a misspelled name, if there’s any error with your payments or if it shows an open account that isn’t yours, that can really hurt you.

Because of the pandemic, you can now get your credit reports for free weekly over at AnnualCredit Report.com. If you do find a problem, you can then file a dispute with the credit bureau. In the meantime, keep your payment history in tiptop shape by automating them using your bank or credit union’s bill pay system.

You also want to keep in mind since lenders are assessing your finances to make sure you can handle a mortgage, you’ll want to make sure that your debt to income ratio is fairly low. Paying down your high-interest debts can be a huge win. If they are credit cards, after you pay them off, you may want to keep the accounts open at least until after you’ve bought your house. Lenders typically look favorably for those who have unused lines of credit. If you want to avoid the temptation of using it, you can tuck away your credit cards in an inconvenient, but safe place around your house.

Figuring Out How Much House You Can (Comfortably) Afford

Now that your credit report is accurate and your score has improved, it’s time for the next step in preparing your finances – finding out how much house you can afford. Besides having your mortgage lender calculate how much you can afford, it is also wise that you run the number yourselves. Chances are you have other goals than just buying a house.

When we were house hunting for our first place, we ran the numbers and then we checked them against what the lender had. With their calculations, we could ‘afford’ a significantly more expensive house. We looked at our number again and quickly realized if we went with their maximum budget, we’d be able to buy a house, but nothing else.

You may be thinking the same way. You’d love to buy a house, but you also want some money left over to enjoy it and other goals. You won’t be able to achieve them if your budget is maxed out on your house. You need to see for yourselves what you’re comfortable with so you can be a homeowner and still hit your goals. So how do you find out how much house you can afford?

The rule of thumb is that you should try to keep your mortgage no more than 2 ½ to 3 times your annual income. Let’s say that your family’s annual income is $65,000. Using that guideline, you’d be looking at homes around $163,000 – $195,000. If you’re a family making $120,000, then you can enjoy hunting houses between $300,000 – $360,000 and still have some money left over for other dreams.

Once you know how much you need to save you can use features like Mint’s Goals to keep track of your progress with the down payment. I’ve noticed that having a visual reminder has motivated many families towards their goals. As you hit certain milestones, have a small celebration.

Why Your Down Payment Matters

One of the biggest reasons why’d you like a larger down payment is to avoid paying private mortgage insurance (PMI). That gives lenders and extra assurance with the money they’re lending, but it can be an unnecessary weight on you.

Start automating transfers into savings with each payment, even if it’s a smaller amount than you hoped. You can then beef up your down payments by redirecting any windfall income (like a bonus, stimulus check or tax refund) into your savings. Having a bigger stash can be a huge help when you buy your home!

Closing Costs: What You Need to Know

You’ve saved your down payment, found an agent, and have found your dream house. Your offer was accepted. Before you celebrate, keep in mind there are some more expenses that come with the closing process.

I pulled out the paperwork from when we were buying a house a few ago and here’s what I found:

  • Appraisal
  • Home Inspection
  • Homeowners’ Insurance
  • Transfer Taxes
  • Underwriting Fee
  • Loan Discount Points
  • Pre-Paid Interest
  • Property Tax
  • Pest Inspection

It probably seems like too much and to a degree, I can understand. Some of these fees are non-negotiable and while others aren’t. However, you want to be careful with which expenses you try to save on. Skipping a home inspection is not a smart move, even with a new build. Believe me, we’ve been there.

When we bought our first house, it was a new build and so we thought it would be fine to skip the inspection and save some cash. However, new builds don’t guarantee good work. We had small mistakes become big headaches and by the time we sold our place about five years later, we had to have all but one of the windows replaced.

Would the inspection help us catch all of these things? No, but it would’ve given us a clearer idea of expenses to expect. With our second house, we did get an inspection and not only did it help us understand what future projects we’d need to tackle, but we were also able to use it as a negotiation tool.

Your Thoughts

I hope these tips give you a jumpstart towards your goal of becoming a homeowner. I want you to buy a home that you love, but allows you to pursue all of your financial and family goals!

The post How to Financially Prepare to Buy Your First Home appeared first on MintLife Blog.

Source: mint.intuit.com