Buying a home is a major financial decision, and it is important to be well-prepared before starting your property search, let alone buying a property.
If you are considering buying a home, here are some things to consider, which will help with your financial preparation:
Your income will play a key role in determining how much you can afford to spend on a home. Make sure you have a clear idea of your take-home pay and any other sources of income. Lenders look at your gross income when determining loan approval, so understanding your net income is important for understanding what monthly payment you can really afford.
As with understanding your take-home pay, also take a close look at your current expenses, including monthly bills, debts, and discretionary spending. This will help you determine how much you can comfortably afford to spend on a mortgage payment each month, whether you can maintain your current lifestyle, or whether there is any spending you can cut back on.
Your credit score will impact your ability to qualify for a mortgage and the interest rate you are offered. Check your credit score and, if necessary, identify the ways to improve it. Make sure your credit score is in good shape before applying for a loan.
In almost all circumstances, you will need cash for a down-payment on the home purchase. Make sure you have saved enough money for a down payment, as well as closing costs and other fees.
Requiring a down payment of 20% of the home’s purchase price is often touted, but there are many loan programs out there starting with just a 3% down-payment. (Notably though, typically the higher percentage of down-payment, the lower the interest rate)
The down-payment can be the biggest challenge people face, but there are many programs that will reduce and even eliminate your down payment; speaking with a real estate professional about your option is the best place to start.
In addition to your mortgage payment, there will be other monthly expenses associated with owning a home, such as property taxes, homeowner’s insurance, and maintenance costs. Make sure you have factored these expenses into your budget.
It is important to have an emergency fund in place to cover unexpected expenses, such as home repairs or job loss. Make sure you have enough money saved to cover at least three to six months of living expenses.
Long-term financial goals:
Consider how buying a home will fit into your long-term financial goals, such as retirement savings or paying for your children’s education. Understanding the long-term strategy when buying a home and factor this into your goals.
(For instance, 83% of retirement wealth in the USA comes from Home Equity)
By paying close attention to your budget and financial situation before buying a home, you can make a wise and informed decision that will benefit you for years to come.