Buying a home is an essential step in many people’s lives. It’s a place where your family can settle, put down roots, and grow together. And it’s not just important for personal reasons. Financially, it’s likely to be the largest purchase you ever make, as well as the most important investment.
So, it’s understandable if you’re a little nervous about financially preparing to purchase a home. While a bit of nerves is warranted, don’t let that stop you from making the financially responsible steps that will make homebuying a little less stressful. Check out these steps, and start your homebuying journey out on the right foot.
Make a budget and stick to it
The first step toward being able to responsibly financially plan for purchasing a home is to start diligently budgeting. One option that is often recommended is the 50/20/30 budget. How does this work? First, take a look at your monthly income. The first half of that should be put toward necessities, like rent, utilities, and groceries.
After that, take 20% of your income and put it toward debt repayment and savings. The last 30% can be spent on the stuff that makes life fun, like eating out, going to the movies, or other hobbies. If you’re trying to fast-track your homebuying timeline, you might want to switch up this budget and, instead, save 30% and spend only 20% on fun stuff.
Find a reliable source of funding
The next thing you will want to do is find funding that can be relied on. Mortgage funding is a diverse and complicated topic, with options changing depending on your status as a homebuyer and the location where you want to buy (more on that in a minute).
Whether you’re looking for VA loans in California, or a new homebuyer bank loans in Texas, the most important thing to focus on is the interest rate. That’s the amount that you’ll pay the bank (or other lending agency) for the privilege of borrowing money from them. The lower the interest rate, the better. Your rate largely depends on your credit score, so it’s a good idea to buff that up by paying your credit card bills on time for a while before applying for a loan.
Save up for a down payment
The next important step you’ll want to make is saving up for a down payment. Interest rates aren’t just dependent on your credit score; the amount of money you can initially put down can also help lower your interest rate, and, because you’ve already paid off a portion of the total price, lower your monthly payment.
It’s a good idea to have at least 15%, but ideally closer to 20% for a down payment on a property. However, depending on the type of loan you apply for, this can vary. Sometimes you can make a much smaller down payment. If you can help it, it’s always a good idea to put down more money – so it might be worth working a little extra to save up for that.
Pay attention to the housing market
Be careful to look closely at the prices of housing in your desired area prior to buying. Housing markets fluctuate with the times, so it’s not a good idea to buy a place at peak prices – you might be able to get a better deal if you just hold out for a few more months.
It’s also important to note the trends in your particular area. Is it an up and coming Chicago neighborhood being revitalized? Or is it a neighborhood on the decline where your investment is likely to rapidly depreciate? These distinctions are crucially important, so pay special attention to market prices prior to making any final decisions.
Protect your investment
Once you do decide to purchase, the next thing you’ll need to do is protect your investment. That means keeping money ready for upkeep, and investing in your neighborhood’s well-being too. Your home is an investment that you’ll likely hold on to for a long time, so prioritizing its growth in value is definitely in your best interest. Especially if you plan on passing it down to your kids, having a substantial amount of equity in your home is a must.
Financially preparing for purchasing a new home is challenging. Taking it step by step and planning carefully is the key to success.