Active Alert: MIT Federal Credit Union will never text, email or call you asking for personal or account information. Never click a link or download an attachment from someone you don't know. Fraud is on the rise; learn how to protect yourself. Learn more

Important note: In the aftermath of Hurricane Helene, MIT FCU is here to help. If you have been affected by the storm and need support, please get in touch with Member Services at (781) 423-2022 or email us at info@mitfcu.mit.edu.

Go to main content MIT Federal Credit Union

Join now

MIT FCU image
MIT FCU image
« Return to "Blog"

Preparing To Buy Your First Home

Authored By: MIT FCU

Buying a home can be a daunting task, though. The challenges of being a first-time homeowner can be intimidating, particularly for people who are moving away from home. Let’s take a look at a few guidelines to help take some of the stress out of the decision.

The house you buy may not be forever

Because of the soundness of real estate as an investment, many first-time home buyers tend to want to get the biggest house they can. They may be trying to start families or getting more space for their existing family to grow. Whatever the motivation, buying a house is one of the few times when people try to plan their lives 30 or more years down the road.

That’s a really big gamble. Any number of unanticipated changes might happen in 30 years: Your job or your partner’s job may force you to move, your parents may have medical problems that need greater care, or you may decide to change careers or start your own business. This unavoidable uncertainty means it’s not in your best interest to plan for a future that’s so far away.

Look for a house that suits your immediate needs and understand that every place is adaptable to a degree. A den or an office can become a nursery, a shed can become a workshop, and a basement storage area can become another bedroom. Don’t think you need to plan your life out forever if you choose to buy a home. Make some reasonable, educated guesses about what your life will be like for the next 10 years or so, and buy the house you need for that time.

Don’t become “house poor”

Many first-time home buyers also fall into the trap of figuring out the most that they could afford to spend on a new home, then spending exactly that amount. The reasoning behind this decision is simple: money spent to repay a mortgage isn’t really “spent.” Homes can be refinanced or remortgaged if money gets tight, or repaid when the house is sold. That’s sound reasoning, but only to a point. People who end up spending most of their monthly income on a house payment leave little for other debt repayment, retirement savings or building an emergency fund. They find themselves unprepared for an unexpected medical bill or car repair. They also find it difficult to take vacations or make home improvements. That’s an unenviable position.

Avoid this trap with a little financial consultation. Understand that your upper limit for housing expenses should only be a worst-case scenario. Buy the house you need, not the most expensive house you can afford. You’ll be happier in your home and in your budget.

Understand the process

There are a lot of factors that go into obtaining a mortgage. First, you and the seller have to agree on a final price, which includes the money you pay for the house and a host of fees, like the inspection, appraisal and title transfer. The realtor in charge of selling the home can walk you and the seller through the process.

Next, you’ll need to arrange financing. You’ll want to shop around for the best prices, but new regulations can make that costly and time-consuming. Each financier has to appraise the value of the home, and then compare their estimate to the price you agreed on with the seller. The greater the difference between these two values, the more expensive your home loan will be, but that’s not the only factor. The financing institution also has to check your credit, verify your income and assets, and confirm your employment to follow new regulations passed after the last financial crisis that was largely fueled by bad mortgages.

These regulations can make it more difficult just to get the home loan, much less one at a good rate. This is particularly true if your employment history is short or if you’re just getting started with a new business.

You can help this process by buying a house you can afford, building your credit score by reducing the amount of credit you’re using, staying with the same employer and saving for a significant down payment. You should aim to have at least 20% of the total amount of the sale for a down payment, as this is the threshold to avoid having to pay for private mortgage insurance (PMI). A larger down payment also reduces the risk of the loan to the lender and can help get you a less expensive mortgage. This, in turn, makes for a less expensive housing payment. You can also ask for help from Mom and Dad; a cosigner on a mortgage may improve your credit score and lower your interest rates.

Don’t go it alone

A lot of big national lending institutions advertise appealing mortgage specials on billboards, TV and the radio. The rates may seem reasonable and even enticing. In reality, though, those rates go only to a small percentage of borrowers – borrowers who have exceptional credit, significant income and a considerable net worth. As a first-time home-buyer, you probably will not qualify for the rates those large, faceless corporate lenders are using as bait to pique your curiosity.

Given the difficulty of shopping around, make your first stop the institution that has the best chance of giving you the best rates from the start. Your credit union is there to help your community, and that includes helping new home-buyers secure loans for the first time. You’re making the right decision by looking for a home during a buyer’s market. Make another smart call by speaking to a credit union representative about mortgage rates. When you’re ready to get out of the basement, your first stop should be your credit union.



« Return to "Blog"
Happy couple signing paperwork
By
Home Ownership

What’s the Best Way to Use a Home Equity Loan?

With interest rates falling and home prices rising, it seems like a great time to tap into my home’s equity using a home equity loan.

Read More

All You Need to Know About Home Equity Loans
By
Home Ownership

All You Need to Know About Home Equity Loans

When you have equity built up in your home, borrowing against it with a home equity loan is a great way to tap into the money when you need it most.

Read More

SOLD sign in front of house
By
Home Ownership

Preparing To Buy Your First Home

Ready to get out of the basement and buy your own place? It’s a big step, but we can help you avoid the biggest pitfalls and keep from digging yourself into a hole.

Read More