Buying a home is undeniably exciting. You are about to embark on a journey that can be deeply rewarding, both financially and emotionally. But it is important to understand the necessity of good planning. Taking an approach that is financially sound is the best way to avoid getting into a situation you regret. You want to love your new home—not feel like it is a burden you can barely manage.
Here we have gathered some of the most important tips for a healthy financial approach to home buying. Discover the things you can do to get the best possible results from your purchase!
Fix your credit.
Most people can qualify for a home loan if they have a credit score of 650 or higher. However, the best interest rates are reserved for those that have a score of 750 or higher. The interest rate you pay is a big deal—a better rate can save you tens of thousands of dollars over the life of the loan. Many financial advisers will tell new home buyers to spend some time repairing their credit if their score is low. You may have to wait a little longer to buy, but it can be well worth it.
Buy for the long-term.
There are a lot of costs associated with purchasing a home. They are definitely worth paying if you plan to live in the home for a period of years. But if you think you might want to move soon, buying will actually wind up costing you more than renting. A general rule of thumb is that it takes at least three years to recoup your costs. Most Realtors will tell you that you should plan to live in your home for at least five years after you buy.
Plan for emergencies.
If you have been renting for a while, you are probably accustomed to having your landlord cover the costs for home repairs. When the water heater goes out, all you have to do is call the landlord and you get a new one right away. The interruption to your life is minimal and it costs you nothing.
As a homeowner, you are the one paying for the repairs. If you do not have an emergency fund set aside for those repairs, they don’t get done. When your water heater goes out and you cannot afford to fix it, you go without hot water.
One of the biggest challenges for new homeowners is to set aside money for such repairs. Ideally, you should have at least a small emergency fund before you purchase your new home.
Buy what you can afford.
Many first-time buyers are surprised when they get approved for big mortgages. The surprise is quickly overshadowed by the excitement of shopping for a home at a price point that takes full advantage of the loan.
It is extremely important that you take stock of what you can actually afford. The lender is calculating what it believes you can pay back. Just because the lender thinks you can pay a big mortgage does not mean you should.
Calculate what you can afford while also paying for all your bills, living the lifestyle you enjoy and saving for retirement.
Try to make a 20% down payment.
If you qualify for a VA (Department of Veteran Affairs) or FHA (Federal Housing Administration) loan, you won’t be required to use a conventional home loan. If you put down less than 20% you’ll end up paying PMI (private mortgage insurance) to cover the equity gap which will increase your monthly payment which provides “protection” for the leander in the event that you default on your loan. With PMI, expect to pay about 1% of your entire loan (or $1,000 per year, per $100,000) – that’s an extra $10,000-a-year minimum in El Segundo’s market. Once you’ve gained equity in your home (at least 20%) you’ll be able to get the PMI removed – until then, it will be added to your monthly mortgage payment. If you’re not in a position to make a 20% down payment, consider one of 2,200+ down payment assistance programs across the Country.
Plan Carefully to Get Maximum Enjoyment from Your Home
With a little forethought and planning, you can purchase a home that you love without compromising yourself financially. Follow the above tips and speak to your Realtor and financial advisor to ensure you make decisions you can be happy with over the long-term.
This article originally appeard on eGundo.com 5 Tips for a Healthy Financial Approach to Buying a Home