Buying a house is the biggest purchase you’ll ever make. It can also be one of the most stressful, depending on where you live and how much money you have to work with. But it doesn’t have to be!
We’ll show you how to make your homeownership dreams come true- from budgeting for those first few years as a homeowner, to getting ready for that next big expense down the line.
Managing finances before purchasing a house
Managing your finances before buying a home is just as important as finding a house that you like and can afford. You’ll need to know how much the average prices in your area are and whether or not you’re getting a good deal on the home that you want. A real estate agent is invaluable for this reason because they know their community well enough to give excellent advice on all of these points. They also know what you can afford and which homes are within your price range.
It’s also important to have an idea of what you can afford for your monthly mortgage payments. Click here to inform yourself of the latest home loan rates and what you can expect to pay monthly. Also, have an idea of your down payment plan. This will determine how much you need for that initial investment. Keep in mind, though, that it’s usually better to have a larger down payment than is absolutely necessary because the less money you borrow, the lower your monthly payments are going to be.
You don’t want to buy a home that is too expensive for your budget because it will make the long-term maintenance much more complicated and harder to pay for. If you can’t afford certain repairs down the line, then keeping up with them could mean incurring huge debt, which could turn into financial ruin.
The benefits of buying a home
There are plenty of benefits to buying a home. One big perk is building your assets and improving your credit score. Your down payment and monthly mortgage payments will go toward the equity in the home, which over time increases in value and could even be sold for a profit! You’ll have the freedom to modernize your home in a number of ways, from decorating with flowers or plants to adding all of the furnishings and decorations you could possibly desire so that it feels like “your” place. You also don’t have to worry that your pets, children, or roommates will bother anyone. It’s your place and you make the rules!
Real estate experts also argue that buying a home is a more viable option than renting in the long term, as owning a home will lock you into a set monthly payment that won’t fluctuate. You’ll have to keep up with your taxes and insurance too, of course, but those costs will still be fairly low compared to rent!
Emergency fund
It’s a good idea to have enough money saved up to cover at least six months of your living expenses. This way, if you lose your job, get sick, or have another type of emergency, you’ll still be able to pay the rent and other bills without going into debt! You can save up for an emergency fund by cutting back on spending, making a budget for your expenses, and/or setting up a separate savings account. Here are quick tips on how to create your emergency fund:
- Put away money in your savings account
- Create a budget for your expenses that includes room for an emergency fund
- Track your spending for two months or more to see where most of your money is going and whether there are any variables you can eliminate
- Go through and cut any unnecessary expenses from your budget to put more money towards saving and emergencies
Why it’s important not to wait until the last minute before applying for a mortgage loan
Many people believe that if they wait until the last minute before applying, they will pay a lower interest rate and be able to get a lower down payment amount. However, this is not always true. The mortgage rates and down payment amounts for borrowers who close within a certain time span can change at any given moment, and you may find yourself unable to secure the type of loan you would like.
It’s important to understand how mortgages work in order to avoid such mistakes. When you apply for a mortgage loan, your lender orders what is known as a “rate lock.” This means that the interest rate and down payment information found in your pre-approval letter will remain valid until there are 1 or 2 days left before closing.
Knowing this allows you to make sure you don’t rush into applying for a home loan at the last minute. Instead, take some time to understand how mortgages work to avoid such mistakes.
What kind of important issues should be considered when deciding how much money to put down
Before determining how much you can afford each month, consider all of the expenses associated with purchasing a home. These include property taxes, private mortgage insurance (PMI), homeowners insurance, repairs, and maintenance. Each one will have an impact on your budget, so it’s important to take them into account before buying a home.
For example, if the average homeowner spends $4,000 per year for repairs and maintenance, but you only plan to spend $2,500 because you’re good at DIY projects like painting and doing small plumbing jobs yourself, then factor that difference in when considering your monthly housing costs. Then think about the other items mentioned earlier. If taxes are around $3,000 annually and the average premium for property insurance is $1,000 (and you’re not married), add those expenses in to get a more accurate idea of how much you can afford.
Buying a home is more than just signing on the dotted line and picking out some paint colors. You’ll need to figure out how much you can afford, where your new mortgage payments will fit in with your monthly budget, and whether or not you have an emergency fund for unexpected repairs. By taking these three important steps before making any commitments, it may be easier to avoid stressful money problems down the road. Which of these three financial planning tips do you think are most essential?
