Homeownership, the ultimate American Dream. It's American like apple pie. One of the first things Uncle Joe asks when you become an adult (whenever that is). But thinking about buying a home can be overwhelming, to the point you grab your favorite snacks wrap up in a blanket and binge on Netflix till the junk food runs out and you can’t feel your legs. So before you even start jumping into looking into homes what are three things you need to consider?
First and foremost-buy a home because you want to. Not because your Mom is guilt tripping you into or because all of your friends are doing or because you almost 40 and still renting. Do it because this is something you want and are able to handle. Yes, real estate can be a great investment but it is also more hassle than renting and is a huge financial decision. Can we say leaky roof at three am? Or all that yard work? Or the furnace has just died in the middle of January? Make sure you plan on staying there for five years at least and it makes good financial and overall sense to you.
Second, do you know your credit score? If not it’s the number all the mortgage lenders are going to look at in determining what loan and interest rate you are going to get. You want a good score which is around 720 and excellent is generally around 750-850. If your score is scary to the point you haven’t paid attention to it since cassettes were a thing. No worries start working on it, it can be fixed. Pay down debts-start paying on time if that is an issue. Work at it, it just takes time.
How much can you afford to pay each month? You want to work backward- get a number that you are willing and can comfortably pay each month. Then add up the expenses. And not just the mortgage, you have to consider other expenses like interest, property taxes, home association fees, utility-if it is a larger house your after than that will be more money, any amenities like a pool and if your super financially savvy than a little bit for savings for those unexpected repairs that will come up. All of this should be included in your monthly number. Have this number, memorize it-know it by heart.
Lastly a down payment and closing cost. The big Kahuna- down payment, the gold standard is 20% but you can possibly get a loan with less or none at all. You just have to be aware of PMI insurance. This is extra money the bank tacts onto your mortgage payment each month when you don’t have the 20% down. It can be 1 to 2 % of the loan value. Lastly, you want to make sure you are saving some money for closing cost. This is additional money you will need to bring-check in hand when you close on your first home. Closing cost can vary generally 2-5% of the purchase price. If you have a great real estate agent some costs of buying a home may be negotiated in your favor
Are you overwhelmed? Take a deep breath and work at each of these steps a little at a time. Before you know it you will be well on your way to looking for your first home, getting your mom off your back, shutting Uncle Joe up and doing something amazing just for you. AND when you are ready we will be here to help you navigate buying your first home