So you’ve finally found the house of your dreams. Congratulations! Now it’s time to make sure you have all your ducks in a row before making an offer. This includes getting pre-approved for a mortgage, setting a budget, and being mindful of your monthly expenses. It’s also important to save for a down payment and have money set aside for repairs and unexpected costs. By making smart financial decisions, you’ll be able to buy the home of your dreams without putting yourself into debt!
What to do before you buy a home:
Before you buy a home, it’s important to make the right financial moves to secure your investment. Here’s what you should do before you buy a home:
• Get pre-approved for a mortgage.
Lenders look at three factors when determining what size loan they will approve: how much money can be made from the monthly payments, what real estate the money will be used to buy, and how much of a down payment can be made. When you get pre-approved, that means a lender has assessed your financial situation and determined precisely how much they are willing to loan you. This saves time because you won’t have to keep re-applying for a mortgage each time you find a house you want to buy.
• Set a budget.
You must have a good understanding of your mortgage rate. This is an important question to ask yourself before you begin searching for homes, but it’s even more essential that you know the answer once you’ve found one. The home’s cost shouldn’t exceed 28% of your total household income. Before deciding on which home to buy, consider other costs, such as closing costs, down payment, and future repairs or maintenance, so that they don’t take away from other financial goals.
• Be mindful of your monthly expenses.
Can you fit it into your monthly budget without any difficulty? If not, then skip to the next step! There are many hidden costs associated with home ownership that can add up over time, so you’ll need to have an idea of what you can comfortably spend before buying a home. To get a better sense of how much money you should set aside for monthly expenses, consider your current rent payments and total expenditures. Then subtract any recurring savings plans or credit cards transactions that pop up regularly
• Save for a down payment.
This is probably the single most important step of all! You may be able to secure a mortgage with just 5% down, but having no money at all will make homeownership impossible. A good rule of thumb when trying to calculate how much you’ll need to put down when buying a home: add together the full price of the house and closing costs, and then multiply it by two. This means you’ll need to save between 10 – 15% of the home’s value before buying.
• Have money set aside for repairs and unexpected costs.
When buying a home, make sure you have an emergency fund that you can tap into if something goes wrong with the house. A good rule of thumb is to add another 5% of your total purchase price to cover such expenses (up to three months’ worth).
What to do when you find a home:
Once you’ve found a great house and want to move forward in the process, certain things should be taken care of immediately:
• Get approved for a mortgage again.
Before you give an offer on a home, it’s necessary to get re-approved for a mortgage. This gives the seller confidence that your offer isn’t just hot air, they know you have the financial means to purchase their house! Make sure the lender who re-approves you is different from the one who pre-approved you.
• Get inspections done.
When buying a home, it’s important to have both interior and exterior inspected. For example, if there are problems within the walls or electrical fixtures, then these will become your responsibility when buying a home. You’ll also want to be aware of any potential structural damages which could escalate how much money it takes to maintain the property in its current state.
• Research homeowners’ associations.
A homeowners’ association can help pay for repairs, but they also have the power to pass special assessments that are levied against all members of the group, so keep this in mind! You may also want to determine whether the HOA has any rules against owning certain pets.
By making smart financial decisions, you’ll be able to buy your dream home without putting yourself into debt!