Wednesday, May 18, 2016

4 Things to do before buying a home

As exciting as it is to buy a home, the lead-up can be a dizzying experience, especially for first-time buyers. But don’t fret. Breaking down the process into smaller steps can help ease your anxieties. Here’s a look at the kinds of questions you’ll want to ask yourself, as well as a few other practical tips.


Although the thought of homeownership is generally a pleasant one, the reality can be much more stressful. That’s why it’s crucial to ask yourself whether you’re really ready for the hassles of buying and owning a home. Gone will be the days when you could simply call the landlord to fix a leaky faucet. Those chores will become your responsibility once you own your castle.
You’ll also want to think about how long you plan on living in the home you’re interested in, which will determine whether you want a fixed- or adjustable-rate mortgage. The latter typically offers a lower interest cost if you plan to sell in a few years.


Use a mortgage calculator to figure out how much home you can afford. It’s one of the most important steps to take. To start, think about your down payment, as well as the transaction costs. Although experts recommend having 20% of the price for a down payment, you may be able to put down as little as 3%, assuming your credit score is good and you’re willing to accept a higher interest rate and pay for private mortgage insurance, or PMI. To give you a better sense of what you might owe, consider that the median sales price of an existing home was about $200,000 in February 2015. So 20% down amounts to $40,000.
Don’t forget the transaction costs, which can amount to 5% of the price, to cover things such as appraisal, title search and lawyer’s fees. When coming up with a homeownership budget, factor in the monthly mortgage payment, maintenance costs and energy bills.


If you’re applying for a mortgage, you’ll want to clean up your credit to get the best possible interest rate on your loan. To lock in the best ones, shoot for a credit score of 700 or above. Over the course of a 30-year mortgage, higher rates stemming from a low rating when you borrowed can cost you thousands of extra dollars.
For starters, reduce your debt as much as possible. That includes slashing your credit card debt as well as any remaining student loans. To see what else needs fixing, order a copy of your credit report.


Financial planners agree that people should spend 28% or less of their gross monthly income on housing payments. The key to that, of course, is having a job. If you’re in between work, lenders are likely to view you as a greater risk when it comes to making mortgage payments. As such, the months leading up to purchasing a home are definitely not the time to make a sudden job or career change.
There’s little denying that the process of buying a home can be stressful. In fact, that may serve as good preparation for some of the hassles related to actually owning a home. In both cases, though, the benefits of homeownership tend to outweigh the occasional headaches.
© Copyright 2016 NerdWallet, Inc. All Rights Reserved


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