For many, buying a home is the biggest financial decision they’ll ever make. It’s the culmination of years of saving, renting and waiting for the perfect house to appear on the market. It can take years for a family to be in the right place to purchase a home, but how do you know when you’re ready? Check out these tips to better assess when the time for homeownership has arrived.
Being able to afford the down payment is a pretty crucial aspect of buying a home. New homeowners can often qualify with a 3.5 percent down payment, but most lenders recommend having 20 percent or more. A higher down payment will save you on private mortgage insurance, which is usually 1 percent of the total mortgage.
Once you’re close to having your down payment, you can talk to a realtor, visit open houses and see what’s on the market — but don’t skip ahead to those steps before you’re ready.
Most lenders want to see a credit score of 620 if you’re applying for a mortgage. But don’t settle for the minimum: Scores of 740 or more will get the best rates.
“[Getting a high credit score] will ensure you are approved for a mortgage and get the best rates possible, which can save you tens of thousands of dollars over the life of a loan,” Eric Rosenberg of Personal Profitability told me in an interview.
It’s one thing to know how much your future mortgage payment and utilities will cost, but it’s another to actually pay that amount every month. If your total housing costs will increase when you buy a home, practice paying more now.
Transfer the difference between your current and future expenses into a savings account. Try that for a few months. Is your budget tighter every month? Do you have less money for travel or eating out? If you don’t notice a significant strain, your new mortgage might be on track. And if you feel the burden, it’s a sign to reevaluate what houses you’re looking at.
One of the biggest changes that comes with buying a house is being responsible for all the maintenance. Now you have to pay for the repairs instead of calling your landlord.
To avoid coming up short when unexpected mishaps crop up, aim to have 1 percent of your mortgage saved for emergencies. You never know when the water heater will break or when the air conditioner will need maintenance. Plus, most banks like to see that you have cash set aside in case something goes wrong. Saving an emergency fund might feel redundant on top of a down payment, but you’ll be glad to have it in case your fence falls down the day after you close.