By Marsha Barnes
We all have many things in life that are our first. First day of school, college, first love, or our first or even second home. There’s typically tons of research that goes into planning major milestones and I’ll say that buying a home is pretty huge. It’s probably one of the most expensive purchases that you’ll make in your life and one of the largest decisions that you’ll ever make.
Years ago buying a home was referred to as the American Dream and for many people it still is. However, being excited about purchasing a home, in comparison to being able to afford a home are totally different. Pace yourself, save up for the down payment/closing costs, research and follow these 5 tips for buying a home:
Don’t bite off more than you can chew. We’ve all heard this phrase before. When purchasing a home remain mindful of how much home you can afford. My recommendation is that your monthly payment does not exceed 30% of your monthly net income. Quick math. If you net $5,000 per month your mortgage payment should be $1,500 or less. That’s 30% of $5,000. Remember, you’ll still have your other monthly expenses; therefore, keep your monthly payment as low as possible.
Evaluate how much space you really need. Sure, those HGTV shows are tempting and will have you yearning for a room to accommodate visiting parents, grandparents, another room for Brother Joe, and a separate kids hangout for the nieces and nephews and don’t forget the screened in porch for the family cookouts. Focus on how much space you really need for your immediate family. The less space, the less there is to clean up, and the less there is to heat or to keep cool. The larger the space the greater the expense.
Evaluate your credit
This is super important. Evaluate your credit carefully before searching for a new home. When it comes to credit you want to land the lowest interest rate possible and the way to do that is to make sure that your credit score is in good standing (I suggest a minimum score of 700) which will allow you to stand a better chance of negotiating rates between lenders. Get yourself in the best financial position to gain loan approval.
Research the costs of utilities in the area where you would like to buy a home. Contact the electric company, gas company, etc. to gain approximate numbers around what you should expect. Utilities for a home can be drastically different from renting a small apartment. A great rule of thumb is to budget for 10% of your monthly income that will be devoted to utilities. Here’s the math. If you earn $5,000 per month that’s a total of $500/monthly including cable.
Take your time when searching for a home. There’s loads of homework that can be done to prepare you for one. Don’t feel rushed, anxious, or that you’re missing out if you don’t already own a home. Your time will come, when it’s right.
Are you on the search for a new home? Tell us about your experience.
Marsha Barnes is the owner The Finance Bar. Visit www.financebar.com for more information.