Don’t Let Buying a Home Drown You in Debt
The real estate market is at an all-time high. And with spring right around the corner, chances are you’re going to start seeing a lot more “for sale” signs in your neighborhood. Ask any Realtor and they will tell you that warmer weather entices people to come out and buy. Is it the right time for you to make your move?
While you might be personally ready for the commitment of owning a home, you need to make sure your finances are in check before starting the process. Here are three great tips that will help set you up for the biggest purchase of your life:
1. Get up close and personal with your finances. Sure, you may know what’s in your checking and savings accounts, but we’re talking about really examining how much you’re earning, saving, and actually spending each month. You also need to make sure your credit score is in tip-top shape. Your credit score significantly affects the interest on your mortgage: the better the credit score, the lower the monthly mortgage payments. Obtain a free copy of your credit report from annualcreditreport.com, and check for errors or outdated information so that you aren’t penalized for it. If your credit score isn’t the best, consider taking the time to work on it before shopping for a home.
2. Figure out what you can afford. Your preapproval for a mortgage determines how much you can borrow from your lender; it analyzes your creditworthiness and income and is the deciding factor on what you can afford. After you’ve been preapproved, start shopping for homes in your price range and stick to your budget. Keep in mind that monthly payments include more than just the mortgage – they also include interest, homeowners insurance and property taxes on the home. So when deciding on how much home you can afford, don’t bite off more than you can chew and become house poor.
3. Plan for added expenses. When going through the home buying process, most buyers tend to forget about all the added expenses that come with this already large purchase. On top of your down payment (if you have one), you’ll also need some extra cash for insurance, property taxes, a home inspection, closing costs, moving costs, and any additional maintenance the house might need. This is where creating another savings account comes in handy; putting away any extra cash you don’t need can add up to cover most, if not all, of these extra costs. You may also be able to take advantage of programs that offer to help with your down payment and other costs.