Buying a home is one of the most important financial decisions you will ever make. This article will teach you how to get financially ready before purchasing a home by exploring topics such as budgeting, saving for down payment and more!
Consider your budget
This is a good starting point for getting prepared financially before purchasing your home. Take a look at your budget and see if you can afford the monthly mortgage payments, closing costs, and any other fees that come with buying property like insurance for your mortgage, or HOA dues before you make an offer on a house.
Research the average home price in your area
It is important that you research the average home price in your area before you start house shopping. A good rule of thumb is to set your maximum budget at 150% of the average home price in order to give yourself some room for negotiation and other expenses like moving costs, closing costs, etc.
Get pre-approved for a loan
A pre-approved loan doesn’t just make buying a home easier, it can also save you thousands of dollars on your purchase. To get pre-approved for a mortgage, all you need is basic information about yourself and the property you want to buy: the size of your down payment; whether or not there are other people who can help you with the down payment; how much monthly income you have available to pay a mortgage loan, and whether or not this is your primary residence. If the bank offers a loan, then they are pre-approved and your mortgage should be less of an obstacle to buying that home!
Save up for closing costs and down payment
It is important that you save up for closing costs and down payment because the costs of buying a home are significant. To get an idea, here is how much you will need to save before that dream can become a reality:
- $25,000 for down payment and closing costs on average
- Closing Costs (e.g., Origination fee): ~$0-$50,000+ depending on the lender
- Down Payment: $0-$30,000+ depending on the property and its purchase price
Research different types of loans (e.g., fixed rate vs adjustable rate)
The most popular type of loan is a fixed rate mortgage. A fixed rate mortgage offers predictable monthly payments that remain the same throughout the life of your loan, which means you know exactly what to budget for even with changes in interest rates.
The other type is an adjustable rate mortgage (ARM). If interest rates go down during the life of your loan, payments may decrease and vice versa.
It is important to research these types of loans before making a decision because of the different types of risk. Mortgages with low initial rates such as ARMs can be tempting because they are more affordable at first, but this is not an indication that you will always be able to afford them.
This post has provided you with some tips on how to get financially prepared before buying a home. It is important that you have an idea of the costs and responsibilities involved in homeownership, as well as your personal financial situation so that you can make informed decisions about when it’s time to buy. Contact an advisor like Dundas Life if you need to. Use these tips from our blog post or those found elsewhere online to help prepare yourself for this exciting step!