10 Things to Know Before Buying Your First Home
 
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How to buy your first home

Financial Advice

BUYING A HOME

Articles and research about home buying

Things you should know before buying your first home

Financial Advice

BUYING A HOME

Articles and research about home buying

10 Things to Know Before Buying Your First Home

Published July 26, 2016

It all seems straightforward enough when you’re buying your first home: you pick out a house, apply for a loan and then, if you’re approved, you’re a homeowner!

Well, there are more steps to buying a house than that – a lot more. It’s not called the “biggest purchase you’ll ever make” for nothing. There are many things about getting your first home loan that you might not have considered. Here are ten of them:

Your Credit Score

Many first-time home buyers enter the home buying process not knowing their credit standing. There are three major credit reporting bureaus: Equifax, Experian and TransUnion, all of whom use their own methods to determine scores. So that there are no surprises, a good rule of thumb for the first-timer - and every American, really - is to check your credit score at least once a year. If there are issues with your credit report, such as inaccuracies or mitigating circumstances, you should be addressing them before you apply for your first mortgage.

How Much House You Can Afford

It’s fine to aspire to something beyond your means when buying a home, but acting on it is a different story. The last thing you want to be is house poor. As we shall see below, the purchase price is only part of the financial commitment you’re making to your home. If you overreach at the outset, you are setting yourself up for a huge struggle to not only make your monthly payment, but to cover the ancillary costs of home ownership as well – and that will have a huge impact on your ability to afford the other niceties of life. It’s a harsh lesson that many learn after it’s too late.

Don't Obsess Over the Interest Rate

Many first-time (and second-time and third-time, for that matter) home buyers become obsessed with the interest rate, ignoring all the other factors involved in the loan. If you’re buying your first home, keep the bigger picture in mind and avoid sacrificing other benefits for the sake of the lowest interest rate you can get.

Focus on the Payment

The most important step to buying a house is asking this question of yourself: Do you have the means to handle that mortgage payment every month? A house you can’t really afford, in spite of a great interest rate, is still a house you can’t really afford. Remember, too, that this is your first purchase. Why overextend yourself right out of the gate? Think long term, instead. Buy modestly the first time around with an eye toward upgrading your home further down the line when you are more established in your career and perhaps need more space for a growing family. You don’t have to buy your dream house on the first try. Instead, get something well within your means and keep dreaming – and working toward that dream, of course.

Prepare for Taxes

Many would-be home owners compare their monthly rent to the cost of a house and immediately start looking to get out of their lease and into a mortgage. The savings can certainly look tempting at first glance. What they often times forget when planning to buy a house is that property taxes can add a considerable money chunk to that monthly mortgage payment depending on the county and state you live in. Back at the rental, the landlord is footing the property tax bill, so for many it’s probably been an out-of-sight/out-of-mind situation. Always factor in the property taxes when budgeting your home purchase. Homeowners insurance and Home Owners Association fees, while usually not as significant as property taxes, push up your monthly bills even further. Be fully aware of these costs as well.

Click here for 2015 Austin-Area City Tax Rates

Taxes and Insurance Go Up Every Year

If you’re fortunate, the value of your house will rise steadily as the years go by. Ideally, it will outstrip inflation and gain real value. While there are few better feelings than knowing your house has gone up in value 20 or 25 percent since you purchased it a few years back, there is a dark lining to that silver cloud: your taxes and homeowners insurance are going to go up accordingly. Property taxes rarely go down (and if they do, it’s probably even worse news than if they go up because it means your area is sliding in value), so know that going in. In a booming market, you could see your annual property tax bill growing significantly each year.

Your First Home: Newer vs. Older

When it comes to buying a new or almost-new home versus a much older one, the important rule of thumb here is this: Know what you want and plan accordingly. There are going to be savings and costs for both, some of which are obvious and some of which are not. For instance, with an older home you’ll need to consider the age of the roof, paint, fencing and appliances. While those won’t be a factor with a newer home, you might find yourself in a newly developed area where you are bound to incur a bigger tax bill to take care of all that infrastructure it requires.

Homestead Your Home

One of your first acts after purchasing your house is for you to apply for a homestead with the county so that they know you are living in the home and not renting it out. Check to see what exemptions apply. Remember that the county is not going to tell you about any exemptions, you are going to have to discover them for yourself. Doing so could save you a considerable amount of money.

Factor in Your Commuting Cost

Perhaps you’ve found the exact place you see can yourself buying your first home, but have you considered how much it’s going to cost you to get to work? At this writing, gasoline prices are at near historic lows (adjusting for inflation), but the cost of gas is just one factor. Rolling up miles on your vehicles costs in the long run, too. Monthly passes for mass transportation and toll roads don’t come cheaply, either. Be sure to factor in what it’s going to cost you to get to the job you need to pay for this new house, in terms of both commute time and money.

Schools

If you’re a parent or thinking of becoming one, you’re going to want great schools for your children. Do your homework on the schools in the area in which you’re looking to buy. A superior school system might just tip the balance in favor of one home over another when you take your children’s education into consideration.

Area Rank Texas Rank School System Primary Towns Served
1 1 Eanes ISD Austin
2 7 Dripping Springs ISD Dripping Springs, Wimberley
3 8 Lake Travis ISD Lakeway, Bee Cave, Briarcliff,
The Hills
4 9 Westlake Academy Charter School Westlake
5 28 Leander ISD Cedar Park, Leander, Austin, Georgetown, Round Rock, Jonestown
6 30 Round Rock ISD Round Rock, Austin, Cedar Park
7 44 Georgetown ISD Georgetown, Weir, Serenada, Walburg
8 47 Wimberley ISD Wimberley, Woodcreek
9 80 Austin ISD Austin, Sunset Valley, San Leanna
10 93 Liberty Hill ISD Liberty Hill, Georgetown

School district data provided by niche.com, based on ranking factors including state test scores, college readiness, graduation rates, SAT/ ACT scores, teacher quality, and student and parent reviews. Source: https://k12.niche.com/rankings/public-school-districts/best-overall/s/texas/

Keep in mind, however, that superior school systems also sometimes come with higher tax rates. Make sure you know what it's going to cost you to live where the educations are best.

Click here for 2015 Austin-Area School District Tax Rates

Now It's Time to Buy Your First Home!

There are many steps and factors to consider before buying your first home, but it shouldn’t dissuade you from applying for that first home loan and starting on the rewarding journey of home ownership. These factors are not presented to scare you off, but rather to get you prepared for what lies ahead. After all, knowing the ins and outs of getting a home loan beforehand is much preferable to after the fact.

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