What is the biggest financial investment you’ll make in your lifetime? For most of us, the answer is probably buying a home. 40% of the typical homeowner’s wealth is tied up in their home. This means that home buyers need to be completely prepared, both now and for the future, when buying a home.
Think Long Term
According to research, the majority of homeowners who sold last year lived in their home for at least 10 years before selling. Some buy their first home and never leave. This means that home buyers will want to select a home with the space and features you need for the long term.
Another thing to keep in mind is that your home is more than a financial investment. This is the place you will raise your family, have friends over and make your memories. With the housing market being prone to changes, you don’t want to make a short-term purchase with the sole goal of making a big profit. Your number one concern should be finding the right home to fit your needs.
Focus on What You Need
This year’s housing market has low inventory so home buyers will want to really focus on what you need and can afford. There are shiny features out there that may be distracting but can run up the price of your house. Some may be nice to have but don’t let them deter you from your original plan.
Home buyers should make a list of must haves and stick to it throughout the buying process.
Stick to Your Budget
Set your budget early – like, before-you-even-start-looking-at-homes-early. In competitive markets it’s easy to spend more by getting into a bidding war. Home buyers need to know that the area where you are buying can widely affect this.
Be realistic about the market and location before you start looking. Chances are you’ll have to compromise whether it’s a smaller home or a home needing some work or a different neighborhood, altogether.
Decide How Much to Put Down
Twenty percent down is ideal because it keeps you from needing private mortgage insurance and reduces your financial risk. If, for some reason, you need to sell, you don’t want to have to owe money.
It’s also important to have a six month reserve in savings. Down payments can be a big drain on your savings account so you’ll want to build up a reserve for emergencies. Keeping this separate from your regular bank account will make sure you don’t dip into it for fun instead of using it for its purpose.
Not only will a reserve be able to pay living expenses if you get sick or lose your job, it also gives you peace of mind.
The pre-approval process can be daunting. You’ll need all sorts of paperwork that documents your income and assets. But these are things you will need to do either way so it is better to get it done now and have time to understand all of the loan options available to you and what you can afford.
There are various types of mortgages available. Home buyers will have to decide which is best for you and your family. While some mortgages might look exciting, the boring 15 and 30-year mortgages usually have their advantages. Mostly, that you are locked into the same rate for the duration of your loan.
Usually these loans have lower interest rates but higher monthly payments. But unlike a variable loan, they don’t tempt you with low payments to buy more house than you can afford.
For most home buyers, this is the biggest purchase you’ll ever make. Be sure to shop around to different lenders to find the best rate for your purchase. Even if it’s only a $50 difference a month, over the life of 30 years it really adds up. Also look for low closing costs and lenders that close on time.
Be Ready To Walk
Home buying is stressful and time consuming but rewarding in the end. Try not to get too emotionally invested until all of the papers are signed. Up until the very end, you need to be willing to walk away. Something may come up during the inspection or maybe the timing ends up not being right.
Stick to your “must have” list and don’t overreach. Before you know it, you’ll soon be happy in your new home.