Getting your driver’s license, renting your first apartment, turning 21…these life milestones pale in comparison to the major step of purchasing your first home. No wonder people tend to approach the housing market with caution.
If you’re planning on buying a house, there are certainly a few things you need to consider. Below, we’re going to go over some of the most important of these: following these tips will ensure purchasing and owning a home will be the joy it’s supposed to be (or at least, as close as possible).
Let’s dive in.
You Need to Budget
While not all financial issues can be avoided, budgeting gives you the best shot at steering clear of monetary pitfalls.
If you’re looking into buying a house, now’s the time to get serious about budgeting!
That’s why you should track all of your expenses, from groceries and electricity usage down to phone bills and Netflix accounts. By doing this, you’ll have a very clear picture of how much money you truly have to spend on a home.
Understand that Houses Cost More than the Selling Price
That clear picture of how much money you have will especially come in handy when you consider that you’ll have to pay closing costs, a monthly mortgage, real estate fees, etc.
The “28%/36% rule” serves as a good guide to establishing “how much house” you can afford. It states that you should spend no more than 28 % of your monthly income on housing expenses and 36 % on all debt, including your mortgage.
Sit down and figure this number out for yourself to get a realistic picture of what you can and can’t afford.
Set Aside An “Unexpected Expenses” Fund
As great as homeownership is, the unfortunate truth is that you’ll always need a bit more money. Unexpected expenses can pop up regularly and have you feel like you’re playing a game of whack-a-mole.
Set aside some extra funds – preferably a few thousand dollars at the minimum – slated specifically for emergencies and only for emergencies. In other words, don’t use this fund for wanted upgrades, only for needed repairs or maintenance such as pest control.
Look for the Right Mortgage
Your mortgage will be something that stays with you for ten, fifteen, twenty or even thirty years – therefore, you really need to get the right one.
So, what should you look for?
First of all, keep the 28%/36% rule in mind – all debts including your mortgage should exceed no more than 36 % of your monthly income.
If you’re planning on staying in the home for the entire length of the mortgage, opt for a fixed-rate loan. Alternatively, if you intend to move out before the mortgage runs its course, consider an adjustable-rate mortgage.
Apply for pre-approval with several different lenders – pre-approval will get you an accurate assessment of how much the mortgage will truly cost.
Finally, don’t be afraid to pit lenders “against” each other. If you are working with two lenders, you may switch to one because they offer lower interest rates – the other lender may respond by lowering their interest rates.
Be Willing to Compromise
You’ve probably heard this next tip once or twice: “when looking for a home, make a list of must-haves and wants. Get one that meets all your must-haves and some of your wants.”
This is good advice because the reality is that it’s going to be very difficult to find the “perfect” house. You might need an office space and want a porch. If you find a home with amazing office space but no porch, well, obviously the office space is more important and that home should rise toward the top of your list (you can always build a porch later).
Overall, all these tips are equally important and work together to make sure your home buying experience is worth it. While it’s important to thoroughly evaluate each home, each mortgage lender, and so on, try to avoid “analysis paralysis” – if you follow the above tips and keep learning about how all this works, you’ll make out fine in the end.