When and how to buy your first home

Self-made millionaire and star of ABC’s “Shark Tank,” Barbara Corcoran wants you to buy a home as soon as possible if that’s what you can do.

Though she doesn’t specify an age, in general, “the faster you buy your first home, in my opinion, the better,” she says. “You have to be in the game.”

Corcoran, who made a fortune in real estate, has always regretted how and when to start. “When I bought my first studio in New York City, I felt cold feet and couldn’t close the door and give up the 10% deposit that I took three years to save,” she said. “And you want to know what happened? I haven’t been able to get back into the market for almost eight years.”

That means “by the time I had the money for a one-bedroom, it just bought a studio, and it just kept repeating and leaving me behind,” she continued. “What I learned from that experience is: As soon as you can buy something, put your money down and take it.”

If you’re interested and can afford it, Corcoran says here are five steps to take.

Before trying to buy a home, you want to know where you are financially, that is, check your credit score.

“The loan you get to buy a property will depend entirely on your credit rating,” says Corcoran. In general, the higher your credit score, the lower your mortgage interest rate, and lower interest rates can mean significantly lower monthly payments. In other words, a high credit score means you’ll spend less on your home in the long run.

If your score isn’t high, consider taking some time to improve it before home shopping, she says.

Corcoran offers a simple formula to help you determine how much you should spend on your first home: “Multiply your paycheck by four and that’s usually what you can qualify for.”

While this formula assumes you’ll be able to pay off 20%, “if you can’t put the 20% together, you shouldn’t lose heart,” says Corcoran. Some experts, like Bach, say a down payment of at least 10 percent is OK, although more is always better.

Corcoran and other experts say another simple rule of thumb is to aim to spend about 30% of your down payment on housing costs. Remember that this 30 percent doesn’t just cover the home’s sticker price: It should include all associated costs, like mortgage interest, taxes, insurance, maintenance, and any renovations you may have. want to do.

Why 30 percent? It’s a standard the government has adopted since 1981: People who spend more than 30% of their income on housing were previously said to be “cost burdened”. Those who spend 50% or more are considered “cost burdens”.

As a first-time homebuyer, be prepared to start small, adds Corcoran: “If you’re thinking about buying your first one-bedroom apartment, change your mind. think: Buy your first studio instead.If you can’t afford a good studio, buy a small studio.The reason is you want trade-offs.

“Every single person living in a multi-million dollar home starts with something smaller that they don’t find acceptable. Lower your standards. Get something small so you have one. the game is fun and you can change the studio into a one-bedroom, two-bedroom, four-bedroom home.”

“The biggest mistake first-time homeowners make is that they forget they need closing costs — not just a 10 percent or 20 percent down payment,” says Corcoran.

Closing costs vary depending on where you live and the type of loan you choose, but you can expect them to add 2-5 percent of the home’s total cost to the final price. That means, if you buy something for $200,000, you’ll owe any fees between $4,000 and $10,000.

For the average home in the US, these costs exceed $13,000.

Fees you can expect to pay include recurring costs like property taxes, homeowners insurance, interest on prepaid loans, and title insurance, plus non-recurring expenses like inspection fees check, application fee, appraisal fee or credit report fee to pull your credit score.

To get a better idea of ​​exactly how your expenses will add up, use the end-of-period pricing tool.

Location is everything. In fact, if you buy in developing areas, you will not only become a homeowner, but you can also make a lot of money, Corcoran says. You’ll get it for a lower price, and if you bet smart, you’ll see “great appreciation,” she said.

Corcoran’s strategy for finding the next hot spot is unconventional but effective: “What I always do is ask my very young, very cute waiters at chic new restaurants: ‘Hey, you’re alive’ where?’ They will always cite a neighborhood I’ve never even heard of and then I go out there and do some real estate shopping.”

After all, “if people are talking about it, it’s up and it’s arrived. Too late for that.”

If you can be flexible about where you live, she recommends considering buying in a city that can bring you more money, like Nashville, Austin, or Denver.

“Before you go shopping for your first home, the most important thing you have to do is qualify with a bank for your mortgage,” says Corcoran.

Prequalification is an estimate of how much you can borrow from your lender. Ideally, you’ll go one step further and get pre-approved, which will analyze your creditworthiness and assure the seller that you can review the transaction.

If you get pre-approved, “you’ll be able to walk in and say, ‘My bid is an all-cash bid,'” Corocran said. “All cash really means, your bid. regardless of you getting funding from the bank – you cleared it with the bank, so you have all the cash to close the property.”

That can make the difference between winning or not winning, she says: “The word power in buying real estate is ‘I’m all money.’

Do not miss: Real estate mogul Barbara Corcoran: Use this simple formula to figure out how much to spend on your first home

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