Owning a home is a lifelong dream for many, but it sometimes feels unattainable because of the financial burden. Saving and planning can seem impossible, but achieving your dream home is not as challenging as you might believe.
Not only do you need to prepare for the down payment and get approved for a mortgage, but you also need to know you can afford the monthly mortgage payments. New buyers must ensure their preparedness for the long haul, so buying a home is less of a challenge and more rewarding.
Evaluate Financial Health
When buying a house, you must first evaluate your financial health. Jumping into the market before being ready can lead to financial stress. It is also essential to assess your debt-to-income ratio. Pay off as much debt as possible to avoid the new mortgage becoming an added burden.
Consider growing an emergency fund covering at least six months of expenses. This fund will give you peace of mind regarding unexpected issues that can arise in life.
It is also essential to evaluate your credit score. Credit scores can significantly impact whether or not financial institutions will approve a mortgage and help determine your interest rate. Take the time to improve the score before seeking a mortgage for the best approval odds.
Consider Your Budget
Budgeting for a new home is an essential first step to make the pursuit easier. Experts agree you should spend no more than 30% of your gross monthly income on a mortgage. This includes any HOA fees, property taxes, homeowner’s insurance, etc. Using an online mortgage calculator can help you visualize the potential costs and determine if they fit within your budget. It is also wise to factor in the ongoing expenses of homeownership, such as repairs.
Prepare for the Down Payment
Traditionally, the down payment for a new home is 20%, but buyers now put down more or less, depending on their budgets and income. The more you put down, the less you finance, saving money on interest costs. Putting less than 20% down adds to the price because buyers must purchase private mortgage insurance.
Those who do not have enough saved for a substantial down payment should put off buying a home until they can. Putting a more significant down payment into the home offers equity that can provide a financial cushion for new home buyers.
Survey the Upfront Costs
New home buyers may not realize the upfront costs of buying a home. There are several costs to be aware of, including the following:
- Closing costs (Typically 2-5% of the loan)
- Home inspection
- Moving expenses
Although it may feel overwhelming, factoring in these costs can help prepare new buyers to avoid financial surprises. Saving extra funds for these expenses will also give you peace of mind.
Seek Mortgage Pre-Approval for Added Peace of Mind
The home-buying process can be confusing, especially for new buyers. There are so many considerations, and preparation becomes essential. It is important to analyze your current financial situation and budget. Determine how much you can afford, and begin saving for a down payment as soon as possible.
It also helps to get pre-approved for a mortgage, especially if your credit score is good. Paying off old debts is a good starting point for maximizing your borrower’s potential.