There's nothing more exciting or fulfilling than living the American Dream and buying your first house. But current renters or prospective homeowners can often seem discouraged if home prices in their preferred area seem out of reach.
This leads to "sticker shock" — the assumption that houses are out of their price range. But this isn't always the case.
Let's take a look at what contributes to sticker shock, and how to find ways to overcome it.
One of the first instances of homebuying sticker shock involves the mortgage, including the down payment.
Many people hold a misguided belief that they need a full 20% of the home price for a down payment. However, first-time homebuyers typically only put down around 7% of the house price, according to the National Association of Realtors.
In addition to the monthly principal mortgage and interest payment, new homeowners are often surprised to learn how much it costs to maintain their new house each year.
Bills for property taxes, mortgage insurance, homeowners insurance, hazard insurance, repairs, maintenance, utilities and more all add up. New homeowners who fail to account for these costs may find themselves lacking the funds needed for any of these expenses.
A good rule of thumb is to calculate regular payments into a monthly budget, and keep a rainy day fund for those unexpected repairs. It also helps to shop around for insurance coverage to compare quotes.
If you're planning on moving into a property that's part of a homeowner's or condo association, chances are you're already factoring in the monthly dues.
However, it's also important to look into where any special assessments are currently pending or due soon after closing. This includes things like upcoming major repairs or replacements. Although in most instances, real estate law requires sellers to disclose this during the selling process, it's not a bad idea to investigate yourself.
Thankfully, homebuyers have access to a wide range of government programs and incentives to help overcome the initial sticker shock.
The Federal Housing Administration (FHA) offers FHA loans that help individuals with a 500 credit score reduce their down payment amounts for buying a house.
The U.S. Department of Housing and Urban Development (HUD) has programs such as the Good Neighbor Next Door (GNND) Program. This provides grants for teachers, law enforcement, firefighters and emergency medical technicians (EMTs) to help them purchase a home.
Those living in rural areas may qualify for a U.S. Department of Agriculture (USDA) loan program.
In addition, military veterans are eligible for VA loan programs.
At The Federal Savings Bank, we have a variety of loan options to suit your needs. Whether you are a first time home buyer or a seasoned real estate investor, we have an option for you.
Want more information on how to deal with first-time homebuyer sticker shock? Get in touch with us at The Federal Savings Bank today.