Buying a home is one of the biggest decisions you’ll likely make in your lifetime. Not only is buying a house a large purchase, but it often times locks you in with monthly payments that will last for years. Because of these factors, it’s important to consider your home purchase carefully before you commit yourself to something you can’t actually afford.
Consider Your Credit Score
Your credit score is instrumental in getting you approved for a home loan. If you don’t already watch your credit report and check your credit score on a regular (or semi-regular basis), you should begin to do so before you try to buy a home. Getting a good handle on your credit score can save you thousands of dollars over the life of your mortgage as it will usually result in a lower interest rate for you.
Save up for Your Down Payment and Closing Costs
Buying a house is more expensive than most people realize. Just because you are taking out a mortgage to pay for the majority of the house’s list price doesn’t mean you won’t have to pay anything out of pocket before you sign the papers and move in. The larger the down payment you are able to make on a home, the lower your overall payment will be. You can get a lower interest rate or you may not be required to have mortgage insurance if you have more saved up. A good benchmark down payment is 20%, although some loans and lenders may require less.
Closing costs can also be quite expensive and need to planned for ahead of time. Closing costs vary by location as well as price of the house, so ask lenders in your area if you need an estimate of what to expect.
Solidify Your Emergency Fund
After you have money put away for your down payment and closing costs, you should also top off your emergency fund. It’s important to have extra stashed away if you are becoming a homeowner for the first time.
It’s inevitable that something will break and need repaired or replaced after you move into your new home. Many lenders like to see that you have savings built up and that you are not living paycheck to paycheck as you pose less risk to them.
Decide How Much You Can Afford
Once you have your down payment and closing costs nailed down, and you have a decent emergency fund in place, you should apply for financing from a mortgage lender.
Most mortgage lenders will pre-approve you for a set amount and then you can begin house shopping for anything within your price range. Be aware that sometimes you are approved for far more than you actually want to spend. Just because the bank says you should be able to afford a $500,000 house doesn’t mean you would actually be comfortable with the monthly payments associated with a house that expensive.
Luckily, you can find a variety of home loans online at NPBS and different types may make your monthly payment more affordable. Just remember that a cheaper monthly payment can result in you paying more interest over the life of your home loan.
Narrow Down the Listings
Now that you know how much you can comfortably afford, you should begin your house search. There are several things you should consider when looking at houses, like location, condition of the property, and size of the home. All of these things can change how much it’ll cost you to purchase the home up-front, and also how much you have to pay over-time in maintenance and up-keep.
Photo courtesy of: Mark Moz