Preparing to purchase a home can be a time filled with excitement as well as uncertainty. For many, it will be the most expensive purchase they have ever made. In addition to the typical concerns such as “am I in the right neighborhood?” or “is the home I am going to purchase in good condition,” there are also a number of financial considerations.
Where Are You Financially?
First and foremost, you need to look at your current financial situation. Is your emergency fund in place? Do you have excessive debt? Are you living comfortably within your means? Do you have enough saved outside your emergency fund for a down payment? If you answered “no” to any of these questions, you should probably hold off on the home purchase. If you’ve checked all these off, read on my friend!
Buy or Rent?
One of the first considerations that you should explore is whether or not a home purchase is a good choice for you and your family. Understanding the costs associated with homeownership compared to renting a home, how long you plan to live there, whether you’re ready to commit to the responsibilities of home ownership, the current market, etc. can help you figure out if homeownership is even something that you need to pursue.
How Much Home Can I Afford?
The million dollar question (get it?). Aim for total housing costs to be 28% or less of your gross income. The additional costs you’ll incur when owning a home besides your mortgage are homeowners insurance, maintenance and property taxes. Lenders sometimes approve you for a higher amount than what actually fits comfortably in your budget, so it is important to understand the effect a mortgage payment may have on your other financial goals.
Selling Your Existing Home
If you are already a homeowner looking to purchase a different home, you may need to sell your current one. Selling a home doesn’t have to be stressful. You can get help from a real estate agent if you don’t feel comfortable with the process. If you feel like you have a good handle on how to sell, you can do it yourself or some hybrid between the two. There are some sites that walk you through the process, which can save you some money on real estate commissions.
Financing Your New Home
Likely the most challenging part of the home buying process and the one that is critical to get right is your home financing. Remember, you may have this loan for a couple of decades. There are many types of loans and ways to customize them. Get a knowledgeable loan officer who can explain all the terms of each loan type. Understanding loan terms and what that means for your monthly payment can be tricky but we have some great tips to consider as you are navigating this process.
The decisions don’t stop once you are ready to close on a home. You need to protect your investment. Homeowners insurance will be a requirement from your lender. You’ll need to understand how to select a carrier and some of the important factors to consider when selecting coverage.
As you can see there is a lot to think about when purchasing a home. Proper research and education will help you better understand many of the considerations to make sure you can enjoy your new home and avoid buyer’s remorse.
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