If it hasn’t happened already, you can count on it happening in your area soon: home-buying season!
It’s easy to get carried away in the excitement of home shopping and the idea of a new life in a new home, so let’s take a moment to review the basics of home buying. How should you prepare, and what challenges can you expect when you start looking for your brand-new home?
1. Kick debt to the curb and pile up cash.
First of all, you need to know when it’s time to buy a home—and it has nothing to do with the calendar or the discovery of a great deal. You should be out of debt and have a fully funded emergency fund in the bank before you ever think about buying a home. Most people don’t wait to have this foundation in place when they buy, which leads to tough times when they face unexpected expenses or a job loss.
2. Set yourself up to win with a nice down payment.
Next, you need to save up a down payment of at least 10%, but 20% is better since it will allow you to avoid private mortgage insurance payments. Yes, you can still find mortgages that require much smaller down payments—but if you can’t afford a decent down payment, that’s a clear sign that you can’t afford a home.
3. Keep your budget conservative.
Now that you have your financial ducks in a row, it’s time to set your home-shopping budget. Stay conservative and keep your payments to no more than 25% of your take-home pay on a 15-year mortgage. Limiting your payment to 25% of your take-home pay means you’ll have money left in your budget for other goals like saving for retirement and your kids’ college—even paying off the mortgage early. And don’t forget, your new home comes with extra costs like yard maintenance, roof replacement or repair and upkeep for your heating and cooling system.
4. Don’t let emotions rule.
You’ve been extremely diligent and intentional to get to this point. Now that it’s time to shop for homes, stay smart. It’s way too easy to blow off your budget if your emotions take over and you fall in love with a specific home or neighborhood. Patience is the key. If you don’t find something to love in your price range, just wait. The right home will turn up before long.
5. This is no time to go on autopilot.
It may feel like you’re in the home stretch once you make an offer on your new home, but don’t let your guard down now! There are still some important hoops to jump through like negotiations, appraisals and the home inspections. Then there’s the final walk-through and closing. You need to stay on your toes through each step to make sure your home purchase goes smoothly and any surprises are dealt with before you move in.
Buying the right home at the right time takes a lot of preparation and hard work, but the reward is knowing your home will be a blessing, not a curse.
You can take another step to make sure your hard work doesn’t go to waste by working with a buyer’s agent. Most homeowners work with a real estate agent to sell their home, but they work for the seller—not for you. An experienced buyer’s agent will speak up for your concerns.
Your buyer’s agent will also save you time and money by helping you find great homes in your price range, negotiating contracts on your behalf, and handling the final closing.