What buyers whether first-time, flippers, or rental investors should know and evaluate when it comes to budgeting and financing before buying a home?
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1. Know Your Total Budget (Not Just the Home Price)
Whether you’re buying your first home or investing, look at the total cost, including:
- Down payment (typically 3.5%–20%)
- Closing costs (2–5%)
- Inspection & appraisal fees
- Immediate repairs/renovations
- Moving expenses
- Reserve funds (3–6 months of payments for safety)
2. Get Pre-Approved, Not Just Pre-Qualified
- Pre-approval shows how much a lender is actually willing to give you.
- It gives you confidence while shopping and makes your offer stronger.
- Understand your interest rate, loan term (15 vs 30 years), and mortgage type (FHA, conventional, DSCR, etc.).
3. Understand Your Debt-to-Income (DTI) Ratio
- Lenders want your DTI to be under 43% (ideally 36% or less).
- Include all monthly obligations: car loans, student debt, credit cards + projected mortgage.
4. First-Time Homebuyers Should Focus On:
- Monthly affordability (not just max loan approval).
- Property taxes, HOA fees, insurance, and utilities.
- Fixed vs adjustable-rate mortgage (ARM).
- Grants or programs like FHA, USDA, or state-sponsored first-time buyer incentives.
5. Investors Looking to Flip Should Focus On:
- Purchase price + rehab budget ≤ 70% of ARV (After Repair Value).
- Cost of holding (loan, taxes, utilities) during renovation.
- Market trends: DOM (days on market), buyer demand, seasonal timing.
- Short-term financing (hard money loans) and exit strategies.
6. Rental Investors Should Focus On:
- Cash flow analysis: Rent – (Mortgage + Taxes + Insurance + Repairs + Vacancy + Mgmt) = Positive Net Income.
- Cap rate (Net income ÷ Purchase Price)—target 6%–10% depending on market.
- Long-term appreciation vs. short-term cash flow.
- Tenant laws, neighborhood rent demand, and landlord costs.
Final Tip: Always Run the Numbers & Plan for “What Ifs”
Whether it’s a job change, rent drop, or repair surprise—build in a safety margin. Never stretch to your limit. Smart financing = smart buying.
