Purchasing your first home is a key life event that may have been a personal goal for years. Once it’s a financially viable option, you may feel eager to begin home shopping and dive headfirst into the process, but it’s crucial to carefully prepare for the largest purchase of your life to date.
Here are some questions before going through with your very first home purchase:
How much can I afford to spend on a home?
As a home buyer, you’ll want to have a solid understanding of your monthly mortgage payments. A good rule of thumb is to avoid spending more than 28% of your monthly income on mortgage payments and additional home costs like property taxes. You must also look at your cash reserves to determine what you have available to cover your down payment and closing costs.
Am I financially ready to take on a mortgage?
Do you have enough in your cash reserves to cover your down payment? Down payments can range between 4% and 20% of the total purchase price. To ensure that you qualify for a mortgage, you need to have a good credit score. If you’re credit score isn’t good enough, you can take steps to improve it. Significant improvements in credit score take at least 6 months, so if you require a big jump in your score, you should probably also postpone purchasing a home. Lastly, you should make sure you have access to critical documents to properly depict your financial situation along with your mortgage application (i.e. bank statements, tax returns, paystubs, etc.)
Have I explored all my mortgage options?
Do your research to become familiar with how mortgage rates work and begin shopping around for a mortgage to help you get the best financing deal. It’s important to obtain information from several lenders, compare costs and terms, and negotiate for the best deal.
You can compare lenders online or contact a mortgage broker who can match you with potential lenders in effort to obtain the best mortgage terms possible.
Have I looked into homeowners insurance?
Your mortgage lender will require homeowners insurance. A multitude of variables go into determining the price tag on your policy, and this amount can vary between insurers. You should spend time finding quality potential insurers and compare them based on consumer reviews, policy terms, and pricing.
If you need help preparing for a home purchase, contact Paula Tarpey or Paul A. Gydosh, Jr. CFP® today.