Preparing Financially to Buy a HomePosted 09/08/2014
Following a tumultuous few years, many home buyers are now entering the real estate marketplace for the first time, hoping to finally secure that long-awaited dream home. While conditions may be favorable, planning is still crucial, especially for this segment of buyers. Buying a new home can be one of the best days of your life, given the right financial preparation. So how do you know if you’re ready?
Here are a few tips to help ensure your “financial house” is in order before your “dream home” is purchased.
Build a budget: Owning a new home means owning a lot of new expenses. To avoid any unexpected costs that come along with the big purchase, it’s important to set a realistic budget. Besides the obvious mortgage payment, you should take into account all other expenses associated with owning a new home, including heating and electricity costs, HOA fees, various maintenance expenses and any costs related to the acquisition of the property.
Save money: Most banks require home buyers to have a down payment of at least 20 percent, which means buying a $200,000 house will require at least $50,000 down. Of course, there are ways around this, but they can come with additional expenses including having to purchase mortgage insurance, which can cost anywhere between .5 percent and 2.9 percent of the amount borrowed. Along with saving for your down payment, you should also be putting money away for an emergency fund to cover three to six months of your living expenses, just in case something happens to disrupt your steady income.
Fix your credit: While you don’t need a perfect credit report to own a home, you should try your best to clean it up, because a few credit points can be the difference between thousands of dollars added to the life of your loan. The government allows everyone to check their credit from each of the three credit bureaus once a year. So take the time to look it over and see if there are any errors or room for improvement.
Prepare for Ownership: Just because you can afford to buy a new home, it doesn’t necessarily mean you’ve considered all of the tasks that come along with purchasing one. Consider if you are ready to live the lifestyle of owning a home — a lifestyle that comes with a lot of new responsibilities. From leaky water pipes and pest control to yard work and seasonal maintenance, you are the landlord and it’s your job to get it done. Assess your prepardness for these items and create a plan to tackle them as they arise. Being ready in the beginning will save you a lot of headache in the end.
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